News & Analysis


Sterling price action has mostly been quiet so far this week, and this morning the pound has followed most of its peers lower against the US dollar on fears of rising risk of conflict in the middle east. Yesterday’s final manufacturing purchasing managers’ index release for December showed the index at 47.5, still below the 50 level that indicates overall growth. This morning Nationwide’s house price index showed the fastest year on year growth in a year, with the index rising 1.4% in December compared to the same time a year ago. This morning at 09:30, construction PMI data will be released alongside money and credit figures from the Bank of England.


Inflation picked up in France and Germany in December, so the preliminary CPI reports suggest, which comes as good news to the European Central Bank’s policy makers. The flash CPI reports suggests the price of consumer goods jumped in December from 1.2% to 1.6% in France, while Germany’s reading is expected to rise from 1.2% to 1.4% when released at 13:00 GMT. The ECB faces problems of structurally missing it’s just under 2.0% inflation target over the past decade, but even though the readings come as welcome news to the Governing Council, EURUSD continues to face selling pressure. Many market speculators are attributing the downside pressure to a corrective pullback after the dollar broadly sold-off earlier on the week due to year-end flows. 


Major currencies including the dollar reacted in a fairly typical fashion to the news that a top Iranian general was killed in a US airstrike, with the yen rallying while other major currencies such as EUR and GBP weakened. The killing of Qassem Soleimani, Iran’s most powerful military commander,  risks serious escalation between the US and Iran, and comes after the alleged targeting of Saudi Arabian oil facilities by Iranian backed militia in September last year. Today’s data calendar is very busy for the dollar, beginning with the ISM manufacturing purchasing managers’ index and construction spending at 15:00 GMT. Crude oil inventory data will be released at 16:00, followed by meeting minutes from the Fed at 19:00 and a speech from the Dallas Fed’s Robert Kaplan at 20:30.


The loonie closed out the day relatively flat after it battled broad USD strength and a negative surprise in December’s manufacturing PMI. USDCAD hit its lowest point since October 2018 during the day as yield spreads and crude oil pricing remained supportive. Oil jumped 3% during early trading today as US Iran tensions continue to build. The crude rally adds tailwinds to the loonie’s recent surge, with the Canadian dollar on the offensive this morning. The data calendar is bare for the loonie today, with the fun reconvening on Monday with the Bank of Canada’s business outlook survey. Labour market data is also due next Friday.