Sterling appreciated yesterday as data once again impressed markets. Growth in the UK’s construction sector jumped unexpectedly to a four-month high last month, adding further evidence that the UK economy started 2015 strongly. However, in contrast to this is the report from the secondary sector; it was reported that staff were hired at the slowest pace in more than a year. Sterling’s performance has been intrinsically linked to the impressive data releases from the UK. The better than expected data has continued to improve the likelihood of an early rate hike. Despite this optimism, Sterling sellers should be cautious with the UK General Election fast approaching. We believe that the upside to Sterling could be capped due to the pending political risk associated with this period.
Meanwhile, we saw a mixed bag of data released from the Eurozone. German retails sales exceeded economists’ consensus, rising to a two year high of 2.9%. On an annual basis, retail sales expanded by 5.3% in January. Annually declining at a faster pace than expected, the fall in commodity prices has meant increased Inflation at European factory gates; this is continuing to put deflationary pressures on ECB President Draghi.
Today’s economic docket is jam packed with high tier data on both sides of the pond. The UK service sector is closely watched as it accounts for nearly 80% of UK GDP. The UK services PMI data is forecast to show continued expansion, a pick up here will mean further strength for the Pound.
In the afternoon, the USA ADP employment report will give the markets an early indication on the key US employment numbers ahead of Friday’s key Non-Farm Payrolls. In addition, the US will release key readings on its service sector with the ISM non-manufacturing report. The Bank of Canada will also release it latest interest rate decision.