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January 2016

Daily Currency Insight

Published: Thursday 07 January 2016

  • PMI data falls to 55.5 from 55.9 in November
  • Growing concerns over weak inflation
Sterling came under significant selling pressure yesterday as the service sector Purchasing Managers’ Index fell to 55.5 from 55.9 in November. The service sector is the largest component of UK GDP so any drop is a little worrying however the reading is still way above the 50 level which denotes the divide between contraction and expansion. The reaction of the market would suggest that traders are bracing themselves for a lower Pound. Growth estimates for the fourth quarter have been revised lower and for now the Pound will remain under pressure.
 
US data was mixed yesterday with the trade balance reducing and better jobs data being tempered by a worse than expected services PMI reading. The Dollar was whipsawed around after minutes from the December Federal Reserve meeting showed that there is a growing concern over persistently weak inflation. Policy makers are clearly worried and noted that if this remains the case, rates may rise more slowly than expected.
 
The minutes also stated that Fed members were concerned about the economic landscape in China and given recent events and the fall in stock prices in Asia, the start of the year may start to gather momentum. The Dollar weakened on the news and this looks set to continue into today's trading session. Today is relatively light on data as we await unemployment and retail sales from the Eurozone and jobless claims from the United States this afternoon. Markets look likely to take their cue from the dovish FOMC minutes released yesterday and there has certainly been some unwinding of recent long Dollar positions. Tomorrow we will see Non-Farm payrolls come into focus with markets expecting another strong reading of above 200,000.
 
FX Research by Ricky Nelson
Daily Currency Analysis with Joe De Berniere

 

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