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The US and UK navies have been operating in the Red Sea to protect shipping
Sterling enjoyed a day of stability yesterday, continuing the theme of recent weeks, with marginal losses against USD and EUR in a quiet day of trading with the US enjoying a public holiday.
However, overnight the pound has weakened against the dollar by around 0.5%, as the world’s main safe haven currency benefits from a “risk off” nervousness in the light of ongoing trouble in the Middle East and the threat to the oil price and international trade.
This morning we have just had unemployment and earnings data from the UK, which showed earnings slowing more than expected, but unemployment at least getting no worse, at 4.2%.
Average earnings excluding bonuses rose by 6.6% in the year to November and 6.5% with bonuses.
Later this morning Andrew Bailey, governor of the Bank of England will be speaking.
Yesterday the German statistics agency Destatis said that Germany’s economy shrank by 0.3% in 2023, the only G7 nation likely to have shrunk according to most analysts, and with its first two-year recession since the financial crisis. Destatis blamed multiple crises (including inflation which has just been confirmed at 3.7% in December – up from 3.2% in November).
News of Germany’s GDP fall came as little surprise, however. More surprising was the surge in the eurozone’s balance of payments to a surplus of €20.3bn in November, from a deficit of €13bn in November 2022.
In business news yesterday, the Red Sea shipping issue continued, with Houthi missiles hitting a US ship.
Transport problems closer to home, too, with more rail strikes announced by the train drivers’ union ASLEF for later in January and February.
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GBP: Earnings and inflation data to test sterling
There was little movement for sterling again yesterday, but a sharp drop against the US dollar overnight. This morning’s unemployment and earnings data will be joined by inflation tomorrow morning, with a modest drop to 3.8% (from 3.9%) expected.
Any rise could upset the markets, especially in core inflation, which remains at over 5%, while the eurozone’s, which will also be announced tomorrow, is currently at 3.6%.
GBP/USD past year
EUR: Euro strengthens in wake of US dollar
It was a positive start to the week for the euro, gaining against most major currencies despite its largest economy – Germany – having the worst economic performance last year in the G7. There has been a downturn against the dollar, however.
Germany’s final inflation figure for December has been confirmed at 3.7%, and later there will be a reading for Italy. However, the bigger event of the day is Economic Sentiment Index from ZEW (the Leibniz Centre for European Economic Research, based in Mannheim), for both the euro area as a whole, and Germany.
USD: Dollar gains from Middle East crisis
While there was little movement for the US dollar yesterday, with the markets closed, overnight the dollar has strengthened by an average of 0.5% against major currencies.
Today is not especially hectic for data, but tomorrow the big data returns with retail sales.
Tomorrow there will be plenty of housing numbers for the markets to analyse, and on Thursday the Michigan Consumer Sentiment index.
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