Sterling traded mildly weaker for most of yesterday’s trading session as the increasingly dovish market was met with another downturn in data, but the risk-on appetite post US-China trade agreement helped GBPUSD finish the day in the green. The CPI measure of inflation hit its lowest level since November 2016 at 1.3% YoY, while the core measure also fell to a three-year. The Bank of England was expected a softer start to the year in terms of inflation, but the market arguably wasn’t. Sterling sold off on the release while swap markets increased the likelihood of a rate cut by the Bank of England at the end of the month to over 60%. The data calendar is light for the pound today while G10 FX has started this morning’s session lightly, with the stand out data point being tomorrow’s release of December’s retail sales report.


The single currency joined the risk-on move yesterday to rally against both the dollar and the pound. Today marks a more important part of the data calendar for the euro with the release of the ECB’s first set of meeting minutes under newly appointed President Christine Lagarde. Investors will focus on the details of the strategic review underway at the bank with the minutes potentially including details as to whether the inflation target will be adjusted again due to lacklustre inflationary pressures. After the meeting minutes, which are set to be released at 12:30 GMT, President Lagarde speaks in Frankfurt for a new year’s address at 18:00 GMT.


The dollar mostly traded in right ranges last night after the US and China put pen to paper on a trade agreement in Washington, with the Kiwi and Aussie dollars enjoying some gains versus the greenback. Whether yesterday’s agreement was a phase one trade deal or simply a truce in the trade war started by the Trump administration is a matter of opinion at this point, but the document was signed at the Whitehouse to minimal impact in markets. The agreement included a two-page chapter where both sides agreed to disclose information on FX reserves and included some mechanisms for enforcement. The rest of the text included a pledge by China to buy $200bn of US goods, and a promise to change controversial intellectual property practices. The ultimate outcome of the truce remains unclear – and raises the stakes for this year’s US presidential election, as it is possible that a newly re-elected Trump would simply resume hostilities. Today at 13:30 GMT retail sales data will be released alongside the Philly Fed manufacturing index and weekly unemployment claims.


The loonie joined most of the G10 currency board yesterday to take its pound of flesh from the US dollar with USDCAD falling 0.15% over the course of the session. Improved risk appetite as both US and Chinese officials signed the narrow trade deal helped the Canadian dollar reverse losses suffered thus far this week. Fixed income markets continue to price Canadian yields above its US counterpart which helped the loonie to stabilise at somewhat of a lower range. Today, the data calendar includes the release of the ADP payroll data.



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