A pretty well performing week was put to a halt on Sterling following retail sales data showing that UK shoppers were spending a lot less this December, this may have come down to the fact that consumers were buying in November during sale periods instead of waiting and also the effects of colder weather. After this release the Pound dropped against both the Euro and Dollar- as weak consumer demand does give the BoE some reason to look a cutting interest rates to boost demand again. Earlier last week we saw inflation data in the UK showing that inflation had risen again to 4%, it is important to note that it will not go straight down to 2% and the last legs of this will be difficult, so though the Pound strengthened, it is not necessarily a trend we can see happening at this point, but clearly the Central Banks will not wait until CPI to reach 2% before considering cuts.
Data-wise it is pretty quiet this week, with no real releases of interest until Wednesday 24th where we begin the day with Flash PMI’s for Europe, France, Germany and the UK- majority of these releases are expected higher, however the only results that are positive are the ones that come out above 50- which would be services PMi for the UK- everything else is expected to come out below. Later on Wednesday we have Flash PMI’s out of the U.S and the Bank of Canada rate decision, where there are no changes expected for January.
On Thursday the main event is the ECB interest rate decision- and though there is no changes expected in this meeting, the speech from Christine Lagarde will be interesting as the ECB is now entertaining the idea of interest rate cuts- if you are trading EURUSD this will be an event to keep an eye on for future direction of the Euro. At the same time we have Durable goods orders data out of the U.S which is expected lower, however this is pretty normal for December data and will probably not move the market, we do also have weekly jobless claims data and trade balance out of the U.S on Thursday afternoon.
On Friday we have Core PCE Index out of the U.S which is expected lower at 3%- lower PCE usually means lower CPI as this is the prices paid by the consumer- lower inflation is a trend in the U.S at the moment so I feel this will probably boost the markets and risk on currencies.