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Positive Eurozone data not enough to lift Euro

Published: Thursday 04 January 2018

  • Positive Eurozone data not enough to lift Euro
  • Construction data for the UK shows slight recovery 
  • Brexit negotiations continue to hamper Sterling strength
By  Zafer Deniz

Positive Eurozone data not enough to lift Euro
The currency markets were pretty active yesterday, with the strong run seen in the Euro and Sterling exchange rate coming to a halt. EUR-USD could not push past 1.2060, despite strong economic data from the Eurozone. In Germany, unemployment hit new record lows, and Consumer Price Inflation (CPI) inched higher, but this failed to boost the single currency.
Construction data for the UK shows slight recovery
In the UK, the Construction Purchasing Managers’ Index (PMI) data just missed its forecasts at 52.2 versus 53.0. The survey indicated that house building remained a key engine of growth, with residential work expanding for the sixteenth consecutive month in December 2017. In contrast, the latest data indicated a moderate fall in commercial construction.
Brexit negotiations continue to hamper Sterling strength
Sterling-US Dollar fell back to 1.3560 level as the markets’ focus shifted back to the Brexit negotiations. There were some reports that the UK may be considering joining the Trans-Pacific Partnership (TPP), however, other reports followed to say that China thinks these thoughts are a bit premature.
UK house prices slow in 2017
Early this morning, UK house pricing data was released, posting a modest slowdown in 2017, with London the weakest performing region. Average prices in the UK have grown 2.6% over 12 months, while London fell 0.5%.
Service sector figures provide some good news for the Pound
The closely watched UK Service PMI was released at 9:30 am. The overall figures showed an improvement on the previous month, posting 54.2 for December 2017, in contrast to November’s 53.8. The results point to a solid increase in business activity, but a slowing of growth for new orders and employment; in addition to three-month highs in input price inflation, as cost pressures continue to rise for the UK. Good news for the most part, and this has helped boost Sterling very slightly. Today we have a host of low to medium tier data for the UK, so we will see if this has any further effect on the Pound.
Surprisingly little movement for US Dollar
The Federal Open Market Committee (FOMC) minutes did very little to provide much stimulus for the US Dollar. Markets are pricing more than a 70% chance of an interest rate hike in March, but some reports say this is a tad optimistic at this juncture. Low inflation remains a concern for some FOMC members, while others say there are risks that the tax cuts could overheat the economy and boost inflation. Overall, a greater number of meeting participants appeared to expect inflation to gradually return to target, warranting a December hike, however, no signals about a March 2018 rate hike were given in the meeting minutes yesterday.
US Jobless Claims data will be released at 1:30pm, however, markets will probably shift their focus to Friday’s key economic indicator for the US, Non-Farm Payrolls. 
Saturday Night Fever?
The other day I walked into the kitchen and could have sworn I heard an onion singing a Bee Gees song. I opened the fridge and it was just a chive talking.

Today's Major Economic Releases

Market BST Data/Event Previous Expected
EUR 09:00 EU: Final Services Purchasing Managers' Index 4.8b 4.9b
GBP 09:30 UK: Services Purchasing Managers' Index 53.8 54.1
GBP 09:30 UK: Net Lending to Individuals 4.8b 4.9b
GBP 09:30 UK: Mortgage Approvals 65k 64k
USD 13:15 US: ADP Non-Farm Employment Change 190k 191k
CAD 13:30 Canada: Raw Materials Price Index 3.8% 4.0%
USD 13:30 US: Unemployment Claims 245k 241k

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