Today's data releases
 Key levels
09:00EU Average Weekly Earnings
09:30UK Manufacturing and Services PMI
14:45US Manufacturing and Services PMI
15:00US Existing Home Sales 
Market overview

The US dollar resumed its slide weaker on Tuesday paring the earlier Monday gains that were attributed to the positive sentiment from the unexpectedly quick end to the US government shutdown. The USD Index (which measures the value of the USD against a basket of six major currencies) hit a fresh three-year low as another poor data release and political headwinds continued to weigh in on the currency. The Richmond Manufacturing Index slowed to 14 (expected 19) while President Donald Trump’s proposed tariffs on imported solar panels and washing machines raised concerns the US is becoming more hostile to international trade. The dollar was subsequently sold off during European trading - EUR/USD rallied to a session high of 1.2306, with JPY and GBP also benefited hitting 110.25 and 1.4027 respectively.


Elsewhere, Eurozone data continued its good run of form with the ZEW indicator of economic sentiment rising 3 points to an eight-month high of 20.4, up from the previous period’s 17.4 and the forecast of 19.0. Additionally, financial market experts’ sentiment climbed to 31.8 in January from 29.0 in December, with 58.8% of analysts surveyed expecting no changes in economic activity over the next quarter, 36.5% expecting improvement and 4.7% expecting conditions to worsen. Eurozone consumer confidence rose to 1.3 in January (from 0.5 in December and well above Bloomberg median forecast of 0.6) - the highest reading since August 2000.


In the UK, public sector net borrowing figures for December 2017 came in at £2.6bn, meaning that the deficit in the final month of last year came in below the £5.0bn consensus expectation and our own £4.6bn forecast. Note that the reading was brought down by an ‘unusually large’ £1.2bn credit from the EU, such the year-over-year improvement in underlying terms is not quite as impressive as the £2.5bn reported. Overall though, the recent trend in borrowing numbers has been a respectable one and these numbers add weight to this view and raise the possibility that the deficit over the full 2017/2018 fiscal year could come in below the £46bn reported for 2016/2017.


The day ahead

The data docket for the developed economies gets busier today starting with this morning’s Japan December trade data which saw exports growth easing but still a respectable 9.3%y/y (from 16.2% in Nov, and slightly missing Bloomberg median forecast of 10%) while imports growth was at a slower 14.9%y/y (from 17.2% in Nov but still above Bloomberg median forecast of 12.4. The market will then wait and see if the Eurozone can continue its run of positive data with manufacturing, services and composite PMI all released at 09.00, while the UK releases a raft of jobs data at 09.30 with average earnings also expected to be heavily scrutinised. Any reading above the forecast 2.5% is likely to see the pound rally against its peers.


Thought of the day

There’s been a lot said about washing machines in recent days, and not just on the fantastic deals available in the January sales! President Trump took a significant step earlier this week to impose import tariffs on washing machines, as well as solar panels, to appease the so-called rust belt to whom he promised to reduce the American reliance on imports and to put ‘America first’. While the President appears to be starting a trade war, the US dollar is going through a spin cycle of its own, falling to a three-year low against a basket of currencies. For the dollar buyers among you, this is a great opportunity to give your FX policy a wash and incorporate more flexible strategies to freshen up your hedging for 2018. 

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