The UK CBI retail sales index remained at 0 for January and below consensus forecasts of 3. Retailers also expected no improvement for February maintaining unrest over retail spending trends. With further speculation that the Bank of England would sanction a cut in interest rates this Thursday, Sterling gradually lost ground.
Futures markets registered the chance of a Thursday rate cut were just above 50%. Sterling was also unsettled by trade doubts with concerns that the decision to grant Huawei limited access to the UK 5G network would complicate US trade talks. A break below 1.3000 against the dollar further eroded confidence while the Euro advanced to 0.8475, but the UK currency did recover 1.3000 at the US close. There was little change on Wednesday with domestic and global caution limiting activity.
Headline US durable goods orders increased 2.4% for December following a revised 3.1% decline the previous month. Underlying orders, however, declined 0.1% for the month compared with consensus forecasts of a 0.2% increase and capital spending was subdued on the month. Consumer confidence strengthened to 131.6 for January from a revised 128.2 in December with an increase in both the current conditions and expectations components. Consumers were also more optimistic over the labour market in the survey, although confidence in income prospects declined slightly.
Elsewhere, the Richmond Federal Reserve (Fed) manufacturing index strengthened to 20 for January from -5 previously with new and unfilled orders returning to positive territory. Employment indices remained strong, but pricing pressures declined during the month. The data maintained reservations over the investment outlook, but still pointed to solid demand and underpinned the dollar to some extent.
There are very strong expectations that the Fed will leave interest rates at 1.75% at today’s policy meeting with the statement and forward guidance watched closely.
Euro buyers are struggling to find a follow-through, having successfully defended the 1.10 key support level on Tuesday. The pair peaked above recent high’s of 1.1025 only to fall back to 1.1010 for the start of today European session.
With the Fed expected to keep its benchmark interest rate steady for the second successive month, the pair may see some volatility if policymakers refrain from pushing back against the slightly increased probability of a rate cut priced-into 2020, courtesy of increasing fears about the economic impact of the new coronavirus.
The Euro could also drop if the forward-looking German Gfk Consumer Confidence Survey prints below the estimate of 9.6 with the data being released this morning alongside the German Import Price Index also due for release.
Data to watch
15:30 - USD - Crude Oil Inventories
19:00 - USD - FOMC Statement
19:00 - USD - Federal Funds Rate
19:30 - USD - FOMC Press Conference
Posted in Daily Market News on Jan 29 2020