Digesting the Fed

The dollar weakens as markets continue to digest a dovish message from the Fed

Previous Day's Market Highlights

Major currencies drifted sideways on Thursday, digesting the dovish message from the Federal Reserve’s latest policy meeting while US-China trade talks continued. The major economic data of the day, eurozone GDP, was released in line with expectations showing expansion at a rate of 1.2% on a year-on-year basis for the fourth quarter of 2018, with annual growth at 1.8% year-over-year. Of more concern to investors is likely to be Italian GDP which, after contracting at -0.2% in the final quarter of last year puts Italy into a technical recession, adding further fuel to the fire of concerns over a global economic slowdown. Despite the poor data, figures were in line with market expectations, meaning that the euro traded largely unchanged.
Elsewhere, both the Aussie and kiwi dollars recorded solid gains of around 0.6% as part of a risk-on rally after a dovish message from the Federal Reserve while the Canadian dollar reclaimed earlier losses to trade flat against the dollar after GDP for November 2018 was released in line with expectations. The only other notable economic data was weekly jobless claims from the US, which missed forecasts by a considerable margin. For the pound, trading was confined to well-defined ranges amid a lack of significant headlines relating to the ongoing Brexit stalemate.
In other markets, European equities had a mixed day with markets in the UK and France gaining while the German DAX lagged behind the pack however the pan-European STOXX 600 recorded its best month's performance since 2015. Across the pond, US equities added 0.8% with the benchmark S&P 500 closing out its biggest January gain since 1987. Finally, oil prices added a further 1%, with both Brent and WTI on track for the biggest January gains on record.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1450 1.1604 1.1035 4.90%
GBP/USD 1.3107 1.3281 1.289 4.56%
EUR/USD 1.1445 1.1570 1.1289 2.43%
GBP/AUD 1.8087 1.8522 1.7613 4.91%
GBP/NZD 1.8962 1.9426 1.8603 4.24%
GBP/CAD 1.7233 1.7498 1.6756 4.24%

Today's Market Highlights

Focus for the first day of the month will lie with the monthly US labour market report, including the headline nonfarm payrolls figure. After payrolls surged to an above-forecast 312k in December, making 2018 the best year for job creation since 2015, market expectations are for a figure around the 165k mark in January. Despite the likely pullback in the headline figure, signs of a tight labour market are set to remain with wages set to continue increasing at 3.2% on a year-on-year basis. After the Fed indicated that they are set to remain in ‘wait-and-see’ mode for now, the jobs report is unlikely to have an immediate on monetary policy though the dollar is likely to find some support on a positive report.
Elsewhere, as is customary for the first day of the month, manufacturing PMI surveys from the eurozone, UK and US will all be released throughout the day and are likely to be closely watched amid the climate of an ongoing economic slowdown. While all three metrics are set to remain in expansionary territory, expectations are for figures from the UK and US to fall further from last month’s levels. Despite this, sterling is unlikely to be driven by the PMI figure with the near-term direction of the pound firmly dependent on the ongoing Brexit renegotiations.
Looking ahead to next week, highlights include the first central bank meetings of the year for the Reserve Bank of Australia (Tuesday) and Bank of England (Thursday) as well as labour market figures from New Zealand and Canada. With regards to the central bank meetings, neither is expected to make any changes to monetary policy however investors are set to pay close attention to their comments regarding monetary policy going forward as other global central banks begin to take their foot off the gas and slow their pace of policy tightening.

Today's Economic Calendar

Time Currency Release Consensus Previous
09:00 EUR Manufacturing PMI 50.5 50.5
09:30 GBP Manufacturing PMI 53.5 54.2
13:30 USD Nonfarm Payrolls 166k 312k
13:30 USD Average Hourly Earnings (y/y) 3.2% 3.2%
13:30 USD Unemployment Rate 3.9% 3.9%
15:00 USD ISM Manufacturing PMI 54.2 54.3