IFX Market Report
Thursday 11th January 2018

Market Report

Sterling fell for the second consecutive day on Wednesday against most G10 currencies and to its lowest in almost two weeks against the dollar after another day of profit taking despite upbeat macro data releases.

Mildly supportive data had little effect on the pound as early data showed British industrial production rose by 0.4% compared with 0.2% in November, although for the year production only grew 2.5% versus 4.3% indicated previously but over forecasts of 1.8%. Manufacturing production also beat expectations at 3.5% over 2.8% as did construction output growing 0.4% for the year against a slight decline of -0.1% expected. GDP estimates held level at 0.6% for December.

Since Britain successfully reached a deal with the EU for exit talks to move on to discussions of a transition period (and post-Brexit trade) at the start of the year, the pound has struggled and with investors stating for the currency to break out the current trading range, it would need significant new developments – being political or economic. A spike in inflation data, due next week, would help support the pound as the markets start repricing expectations of the timing of the next rate hike from the Bank of England.

GBPEUR opened at 1.1312 and slipped on the back of early profit taking to the session’s low of 1.1274. GBP managed to claw back some losses to close 1.1292

GBPUSD opened at 1.3511 and swung from the day’s low of 1.3485 to the highs at 1.3561 before midday. As US data unravelled in the markets, the pair traded narrowly to close 1.3523

Worldwide News

French Industrial production fell to -0.5 from -0.4 expected and a long way from the last reading of 1.9%. The focus for today sits with Italian Retail Sales, Industrial production figures and the ECB Monetary Policy meeting Minutes. These will be looked over for any clues of further reductions or plans to end bond buying and worries over low inflation.

Data from the US showed import prices rose by much less than expected in December. The previous reading hit targets with 0.7% and this was expected to cool, but only to 0.4% however 0.1% was the result. Export prices decreased by 0.1% after rising 0.5% the previous month and the expected figure was 0.3%. Final wholesale inventories missed the mark with 0.8% the figure from 0.7% expected. With inventories, a lower figure is viewed as positive as depleted inventories leads to an increase in business spending as they replenish their stock.

An interesting report that surfaced yesterday stated that Chinese officials are reviewing their stance on buying US Government Debt. China is the largest foreign investor in US government debt so any news on a slowdown or halt on new purchases impacts the USD. The impact of this release was short-lived as the validity of these claims is questioned.

EURUSD opened at 1.1944 and jumped 75 pips shortly after to peak the session at 1.2014. The dollar rallied back to close 1.1974