Post date: 20/01/2020 08:39

All G10 currencies ended last week almost exactly where they started it. The sole exception was the Japanese Yen, which suffered as increasing risk appetite drove traders out of safe havens. Equities and credit markets worldwide continued to rally in celebration of the signing of Phase 1 of the US-China trade agreement. Emerging market currencies turned a mixed performance, but are generally up strongly so far this year.

We expect currency market volatility to return this week as critical PMI activity surveys are released in the UK, the US and the Eurozone. We expect a strong release in the latter one which should buoy the Euro. The ECB meets on Thursday, but no policy actions or significant changes in its outlook are expected.


Sterling resilience in the fact of decidedly weak economic data last week is remarkable. Industrial production, inflation and retail sales were all weaker than expected. As a result, markets are now starting to price in a cut at the next Bank of England meeting. In spite of this dovish backdrop, Sterling ended up nearly flat against bot the dollar and the Euro. This week PMI and employment report should both be relatively strong ease a bit of the negative sentiment around UK fundamentals and be supportive of the Pound.


Our view for Eurozone economic outperformance relative to consensus will be tested this week. The early PMI surveys of business activity for January will be released Friday. We expect a significant improvement across the board, on the back of the financial market rallies and general optimism about trade conflicts. While the ECB meeting on Thursday is unlikely to generate market-moving headlines, an upside surprise in the PMI release could provide a significant boost for the common currency.


Aside from the signing of the US-China Phase 1 trade deal, the most important news out of the US last week was a softer-than-expected CPI inflation report. Inflationary pressures in the US remains muted, though inflation is close to Fed targets. This means the Fed will not be moving any time soon. This week, the Markit PMI release on Friday should be the main focus for dollar traders.