In comments on Tuesday, Bank of England Governor Bailey stated that negative interest rates were a controversial issue and that there are a lot of issues with the transmission of rates dependent on the banking sector. Bailey pointed to near-term downside risks, but was still confident that long-term scarring will be contained and that there will be a strong recovery later in the year. Overall, Bailey’s comments were seen as lessening the potential for negative rates which supported Sterling as markets moved to price out any rate moves until later on in the year.
Despite near-term fears over the outlook, optimism over vaccine developments also helped underpin the UK currency and there was some optimism that the rate of growth in new cases was slowing alongside the vaccine rollout appearing to be hitting the government's weekley target.
Sterling holds firm this morning and is eyeing the 1.37 figure against the Dollar whilst against the Euro, is finding itself just over the 1.1215 mark.
The US NFIB small-business confidence index declined sharply to 95.9 for December from 101.4 previously and well below consensus forecasts of 100.0.
The JOLTS job-openings data recorded a small decline to 6.53mn from 6.63mn the previous month, although slightly above market expectations. The IBD consumer confidence index strengthened to 50.1 from 49.0 previously with little overall market impact.
Cleveland Federal Reserve (Fed) President Mester stated that monetary policy will not need to change as long as the medium-term outlook remains intact even though downside risks have lessened slightly. Kansas City head George stated that the Fed won’t react to any inflation move above 2.0%.
The latest CPI data is due for release on Wednesday, although the second-quarter data will be important given that inflation will be pushed higher by a base effect of price declines in the second quarter of 2020.
The Euro managed to claw back some gains against the Dollar yesterday and pushed towards the 1.22 mark during the US trading session. Reports coming out from German Chancellor Merkel that the current lockdown measures were likely to stay in place until early April undermined the single currency and capped further strength, fuelling concerns over near term developments within the Euro-zone economy.
The focus today will be on ECB President Christine Lagarde's speech and the Industrial Production data for the Eurozone. With bond yields rising despite a relatively weak fiscal stimulus by the government, President Lagarde has very little room to sound hawkish. The central banker will likely reiterate her willingness to provide more easing if necessary.
Data to watch
10:00 - EUR - ECB President Lagarde Speaks
14:30 - USD - Core CPI
14:30 - USD - CPI
Posted in Daily Market News on Jan 13 2021