29/01 – Markets remain uneasy heading into the weekend

Jeremy Thomson-Cook
Jeremy Thomson-Cook 29 January 2021

GBP: Data remains a risk to sterling upside

EUR: ECB comments finding a middle ground

USD: Dollar strength emerging

Sterling

Currencies continue to churn on flows elsewhere in the financial system this morning. A slight rebound in risk sentiment and a softening of some fears over a global sell-off in equities is responsible for sterling’s move higher in the past 24hrs.

The news here in the UK remains relatively quiet today although sterling will continue to hold a political risk premium given concerns over anything from the Covid-19 response to the prospect of a 2nd referendum on Scottish independence.

We also remain cautious on sterling on data, with a slew of sentiment numbers due from services, construction, and manufacturing industries next week ahead of the latest Bank of England meeting.

Euro

The euro is continuing to trade on the wider hope that market frictions abate in the coming days and the single currency continues to show a remarkable resilience given the issues the bloc faces on vaccines.

ECB comments are ten a penny these days with the overlying theme remaining that while interest rates remain a way the European Central Bank could stimulate the European economy; they are not going to do so anytime soon.

US dollar

February has typically been a strong month for the US dollar and analysts are calling for investors to increase their bets that next month is no different. The logic is that a long Chinese New Year celebration combined with rising Covid-19 rates will be negative for risk in the short term and there is a lot of sense in that. The overall mood in markets at the moment is very fragile and the last thing that the world needs right now is another increase in cases following a national holiday.

Closer to home the USD will be focused on stimulus chatter; delays are not good for the consumer nor for the recovery and the lag will start to hit USD-negative sentiment if it is allowed to continue past the market’s current guideline of March.

This afternoon’s inflation number is the most important data point of the day and will likely continue to show that inflation pressure are nowhere near where they need to be to move the Federal Reserve away from policies that weaken the USD.

Elsewhere

Haven currencies continue to trade positively at the moment as the world continue to adjust to the risks posed by a slower recovery from the Covid-19 crisis than many thought when we started the year.

Have a great day and a better weekend.