The euro slipped below the 1.08 mark against the greenback on the combination of meaningfully softer-than-expected ZEW surveys in the
Eurozone and Germany, and significantly stronger-than-expected Empire Manufacturing index in the US. The ZEW index, which captures
investors’ expectations for the next six months, reflected the first perception of the coronavirus shock on the European economy.
Export-driven sectors such as carmakers and electronics saw the sharpest declines. Onwards, the divergence between the Fed and the ECB
expectations should continue weighing on the single currency. Traders will likely remain seller on advances above the 1.08 mark. For
short-term trades, the topside appears to be capped by the 50-hour moving average, which currently stands at 1.0820.
In Britain, the
latest jobs data released yesterday was good and bad. The economy added 180’000 new jobs in the three months to December, the fourth largest
surprise since 2015, but average earnings growth fell to 2.9%, the lowest since October 2016. Cable first fell to 1.2970, then rebounded
past the 1.30 mark on news that Rishi Sunak will reveal the budget on March 11 as planned. He is expected to expand spending in line with
Johnson’s will. Expectation of higher government spending should temper the prospect of lower interest rates in the foreseeable future,
as the Bank of England (BoE) will likely wait and see the benefits of higher spending before moving ahead with a possibly premature rate cut.
Due today, the inflation data should confirm a significant improvement to 1.6% in January from 1.3% printed a month earlier. A strong
inflation figure should further curb the dovish BoE expectations and translate into a stronger Sterling. But Cable should meet resistance
at 1.3050/1.3100 area.
By Ipek Ozkardeskaya
