Weekly Analysis 04.01.2016

The dollar strengthened against both the pound and the euro last week as 2015 trading drew to a close. There were no major releases from the UK and few from the Eurozone. Data highlights included a higher-than-forecast increase in weekly US Unemployment Claims, as well as a positive jump in Consumer Confidence in the US. Attention this week is on the Fed’s December Meeting Minutes and Friday’s jobs report, as well as UK PMI figures and Eurozone inflation and unemployment data.
GBP – Last week’s calendar was a quiet one for the UK, with no major releases out during the three-day week, and the pound weakened further against the dollar and treaded water against the euro. The quieter week followed a downwards revision to Q2 and Q3 GDP, which contributed to recent Sterling weakness.
The calendar picks up this week. While Manufacturing PMI dipped and the Services figure is also expected to underwhelm, a forecast uptick in Construction PMI could offer the pound some support mid-week. Net Lending to Individuals came in above forecasts on Monday morning, and the other main release this week is the Trade Balance, out Friday. Any positive figures could offer the pound opportunities to strengthen, but a set of strong releases may be necessary before the pound is able to make a more significant and lasting recovery against the euro and the dollar.
EUR – There were few major releases last week as the calendar was quieter as the year drew to a close. Releases included a disappointing Spanish Flash CPI figure—inflation was unchanged compared to a year ago—and a slightly under-forecast y/y M3 Money Supply figure. The euro was relatively unchanged against the pound last week, while it weakened against the dollar.
Releases this week include inflation figures from Germany and the Eurozone as a whole, Spanish and German Unemployment Change, German Factory Orders and Retail Sales, and the Eurozone’s Unemployment Rate. An uptick in inflation figures could offer the euro some support, as persistent low inflation was one of the factors that spurred the ECB to expand stimulus in December. Forecasts for the other releases are mixed, and they may provide the euro with limited support unless they surprise to the upside.
USD – The dollar strengthened against both the pound and the euro last week as the year drew to a close and investors turned to the dollar.0 An increase in Consumer Confidence from 92.6 to 96.5 offered the dollar support at the beginning of the week. Other releases disappointed, including Pending Home Sales, which unexpectedly contracted compared to the previous month; weekly Unemployment Claims, which rose more than forecast to 287K; and Chicago PMI, which dropped from 48.7 to 42.9, its lowest level since 2009.
This week, attention will primarily be on Wednesday’s release of the Fed’s December Meeting Minutes and Friday’s jobs report. Investors should keep an eye on any further insights into the Fed’s decision to raise rates and the outlook for additional rate increases in 2016. Any new information could strengthen the dollar. The other main highlight this week is Friday’s jobs report, which will include a review of employment and wage growth over the course of 2015 as well as the figures for December. If the Fed’s minutes contain no new information or take a less-hawkish tone than markets expect, or if US data disappoint, the dollar may weaken; otherwise, the dollar may maintain its current strength.

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