GBP/EUR 1.2106 (0.8264)
Last week the dollar managed to halt two weeks of declines but there is still a lack of clear direction for the greenback, when many expected 2014 to be the year of the USD. The effects of poor weather are likely to continue to impact US data into March meaning it will be April before we get some clean data from the states. Two months of uncertainty on US growth will see many scale back their taper expectations so it is down to the Fed to remain consistent on this front, any signs of wavering now will likely see the dollar under further selling pressures.
On that front Fed Chair Janet Yellen will testify to the senate on monetary policy on Thursday and thus far she has not strayed too far from the rhetoric of her predecessor. Friday will bring us the next revision of Q4 GDP data for the US, which is expected to show annualised growth remaining at 2.6%. Today’s calendar is light in the US so expect larger risk trends to dictate USD flows.
The G20 have been meeting in Sydney and comments from the meeting suggest that developed economies will maintain supportive monetary policies whilst being mindful of larger impacts on the global economy. Further comments released from Mark Carney of the BOE saw the pound face some early selling this morning as he reiterated that future rate increases would be gradual and limited, and the BOE are in no rush to raise rates at this stage. He also commented that the UK economy needs further business investment, which will be key for UK growth.
It is a relatively light calendar from the UK this week with little data of note in the early sessions. Wednesday has the first meaningful action with Q4 GDP data expected to remain unchanged at 2.8% year on year.
Most of the action today comes from Europe and first up is the German IFO business survey. The confidence measure is expected to tick lower to 110.5 in Feb from 110.6 in January, a small decline but this will put an end to a three month advance on the reading. Eurozone data has been to the downside of expectations since late January and the lack of stimulus action from the ECB early in the month may also have impacted the reading.
Any reaction from the IFO is likely to be short lived as CPI inflation data is more important for the ECB. The disinflation environment in the Eurozone is no secret and despite the ECB downplaying the threat a downward revision to the January figure, should one materialise would likely see further selling across EUR pairs. A drop below .7% year on year figure for CPI will see increased speculation for the ECB to act.