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A mixed bag of UK data

Potential credit downgrade

Last week, credit rating agency Moody’s Analytics suggested the UK’s credit rating could be at risk should the UK and EU not manage to agree a deal by the end of 2020 as planned. Data also showed a fall in UK inflation in December—reaching the lowest level since November 2016—raising market expectations for an interest rate cut, perhaps as soon as this month. In positive news, the UK housing market experienced a rebound after the election. Industry expert Simon Rubinsohn suggested: ‘The housing market is seeing some benefit from the greater clarity provided by the decisive election outcome.’ One of the most important data releases in the week ahead will likely be the latest UK manufacturing and services stats from Markit on Friday. Any figure above the 50.0 level indicates expansion, whereas below denotes contraction. UK employment data will also be out in the week ahead, which may also offer the Pound some opportunity to move.

ECB in focus

The Pound struggled to hold ground above the 1.17 level against the Euro last week; meanwhile, the common currency managed to achieve a one-week high versus the US Dollar ahead of the US-China trade deal signing. Last week the European Central Bank released its account from its December gathering, striking a more upbeat tone in the first meeting with new appointment, Christine Lagarde. While acknowledging the risks to economic growth ‘remained tilted to the downside’, the central bank suggested ‘these risks had become somewhat less pronounced’. In the week ahead, one of the biggest events for the Euro will be the European Central Bank’s latest interest rate decision, and accompanying press conference scheduled for Thursday. German and French manufacturing and services data will also be out which could influence the common currency. 

Beige Book, beige economy 

The US Federal Reserve released its latest Beige Book last week, which commented on the subdued economy. This could signal stable monetary policy for now, following three cuts in the second half of 2019. Additionally, the UK signed a phase one trade deal with China, offering these particular political tensions some respite, and perhaps some stabilisation in confidence. It’s a quiet week ahead in terms of US economic data, but there are a few data releases which could influence the USD exchange rate, such as Friday’s manufacturing and services data. 

Wary about negotiations 

The Aussie and Kiwi Dollars noted only small gains late last week following the trade truce between the US and China, as markets remained wary of the prospect of further negotiating in the months ahead, with more trade headlines likely to dominate 2020 media. Meanwhile, New Zealand saw a rebound in economic confidence in the final quarter of the year, rising from -40 to -21. This week, Australian employment data will be released, which could move the Australian Dollar significantly. Consumer confidence, manufacturing, and services data will also make its way onto the market which could create some Aussie fluctuations. Investors in the New Zealand Dollar will be looking towards the release of quarterly inflation data. The last reading, which detailed the three months through October, showed an increase from the previous and forecast of 0.6%, to 0.7%. Any further increases could bode well for the Kiwi Dollar, but a decline could put pressure on the Trans-Tasman currency. 

Bank of Canada in focus

The Canadian Dollar strengthened in the middle of last week—after reaching a near two-week low the week before—after the US and China signed a phase one trade deal. A pickup in global trade could be beneficial for Canada, given the nation’s largest export is oil. The decrease in trade tensions could be seen as another factor for the Bank of Canada to keep interest rates on hold in its upcoming meeting this week, while the Bank awaits further data releases. Canadian interest rates have remained on hold at 1.75% since October 2018, while many central banks across the world have chosen to cut amid a global slowdown. In the week ahead, retail sales and inflation numbers could also influence the Canadian Dollar. December’s inflation reading showed a decline to -0.1%; any return into positive territory could be beneficial for Canadian Dollar strength.  

Surprise cuts 

Last week, the South African Rand slipped after the South African Reserve Bank cut interest rates in a surprise move as the slowdown continues. In the week ahead, influential inflation data will be in focus which could create some Rand fluctuations.