Daily Insight

Following on from last year, the dollar has declined against both the Euro and the Pound and dropped to the lowest level in over three weeks on speculation that the ISM manufacturing report this afternoon will show that growth in the sector stagnated in December. In addition, there is some hugely significant employment data released towards the latter part of the week with Nonfarm Payrolls expected to show that the economy added fewer jobs than anticipated in December. Growth in the retail sector and a buoyant labour market has propelled economic growth over the past year following a dramatic downturn in manufacturing and particularly housing. This has led to increased speculation that the Federal Reserve will begin cutting U.S interest rates early this year, which will continue to weigh on Dollar sentiment. The focus today in terms of economic data will be the release of the minutes from the last FOMC rate announcement where policy makers elected to hold rates at 5.25%. The minutes should provide an insight into future policy and therefore, the language and tone of the accompanying statement will be watched closely.

Over the past year, the Euro has appreciated 10.2% against the Dollar and that trend continued over the Holiday period as speculation continues to mount that European interest rates are set to rise while the Fed are deliberating over a cut in U.S rates. The Euro has also remained firm this morning following a particularly soft report on Euro-zone manufacturing, which unexpectedly declined last month. Growth in the sector stagnated following a further rise in European interest rates last month and with a strong euro hampering exports, the outlook for companies continues to look bleak. In addition, the Euro has also shrugged off a separate report on German consumer confidence, which declined from a five-year high last month following the introduction of the value added tax increase at the start of this year.

The Pound has made dramatic gains against both the Euro and the Dollar over the past year and following a round of particularly soft U.S data, we are edging back up towards 1.9750 versus the Dollar. There is a host of significant economic reports released in the UK this week with the focus falling on the CIPS services and manufacturing surveys, which are both expected to remain relatively robust for the month of December. Elsewhere, a separate report from the Bank of England on Thursday may show that UK mortgage approvals remained at an elevated level in November as a further rise in interest rates does little to quell demand.

Data Released 2nd January

UK 09:30 CIPS Manufacturing Survey (December)

EU 09:00 PMI Manufacturing (December)

U.S 15:00 ISM Manufacturing (December)

U.S 19:00 FOMC Minutes 12 December Meeting

written by Adam Solomon