Sterling remained in a slim trading range against most currency pairs yesterday as there was little in the way of major UK economic data to move the market. The data that was released, namely mortgage approvals for 2019, leapt to a 10 year high as almost 1 million mortgages were approved by high street banks, the highest number since 2009, with more than 500,000 going to home buyers and re-mortgages making up the majority of the rest.
Instead, traders remain focussed on the Bank of England’s Monetary Policy Committee’s interest rate decision this Thursday. After comments from Governor, Mark Carney, and other key MPC figures, markets initially factored in a 70% chance of an interest rate cut, although following a buoyant raft of UK economic data, investors are questioning the need for an immediate rate reduction and the market is considerably more split on opinion now. Thus, we have the most uncertain interest rate decision for some time.
Thursday’s BoE meeting will certainly be the key focus on the economic calendar this week and whatever the decision, investors will look towards the MPC minutes released at midday and Governor Carney’s speech at 12:30pm, for further hints and direction on monetary policy. The BoE will also release their Quarterly Inflation Report at midday. There is little UK economic data available today although tomorrow sees the release of Nationwide Housing Prices data which is expected to reflect MoM and YoY increases of .3% and .6% respectively.
The German economy continues to display little sign of recovery as latest data from the influential Institutes monthly survey showed its first slip since August. Whilst it appears manufacturing may be stabilising, weakness has now spread to services and construction as businesses become increasingly cautious. There are also concerns over the current US-China trade war and the possibility of this expanding into a US-EU trade war, which would further hamper growth.
Katharina Koenz at Oxford Economics said “The main disappointment was in services, which are prone to be volatile, so we maintain our view that recession risks are fast abating for Europe’s largest economy and expect Germany’s growth will pick up a little, to 0.2% in 2020’s first quarter. Downside risks from industry, global trade and the threat of US car tariffs remain, however.”
Today sees several European data releases, including M3 Money Supply, which is a measure of money supply that is released by the ECB, calculating all currency in circulation. This is an important indicator of inflation. However, Friday will see key data releases, Consumer Price Index and Gross Domestic Product.
Growing concerns over the outbreak of coronavirus is continuing to benefit the US’s safe-haven status as sterling drifted marginally lower against the US dollar during Mondays’ trading as there was little US economic data on the calendar. Although, in the data that was released, The National Association for Business Economics said that 67% of respondents expect US GDP to grow by 1.1% - 2% in 2020, with an increasing number of respondents (30% - 10% higher than when polled in October), now forecasting growth of up to 3%.
The US is currently experiencing historically low unemployment and strong consumer confidence, and with US-China trade troubles showing light at the end of the tunnel, many are full of optimism for the US economy.
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