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Highlights last week include an unexpected slight uptick in the UK’s Services PMI, which gave the pound some mid-week support, as well as Friday’s strong US jobs report, which included a drop in the Unemployment Rate and a rise in wage growth. The jobs report strengthened the dollar, offsetting some earlier dollar weakness after Manufacturing and Non-Manufacturing PMI data disappointed and Fed member Dudley made dovish comments. This week, attention will largely be on Fed Chair Yellen’s testimony on the Seminannual Monetary Policy Report, Eurozone GDP, and UK Manufacturing and Industrial Production figures. Financial markets and oil prices are set to remain in focus again this week.





GBP – Last week was a busy one for the UK’s economic calendar. While Construction PMI disappointed expectations, at 55.0 it remained above the 50.0 mark, indicating industry expansion. Manufacturing and Services PMI both surprised to the upside. The Manufacturing index rose from 52.1 to 52.9, while the Services index ticked up from 55.5 to 55.6, giving the pound some needed support ahead of Thursday’s Bank of England meeting. The BOE continued to place emphasis on the risks posed by global financial market volatility and revised down its forecasts for wage growth, GDP growth, and the rate of inflation. However, BOE Governor Carney also emphasised in a press conference covering the releases, including the quarterly Inflation Report, that the next move in interest rates is still likely to be an increase.

The calendar is lighter this week. Releases include the UK’s Trade Balance and Manufacturing and Industrial Production m/m. A narrowing of the trade deficit is expected, while Manufacturing and Industrial Production are expected to underwhelm, if improve compared to the previous releases. As a result, there may be little out to boost the pound anew this week, unless the releases surprise. Brexit concerns will likely continue to weigh on the pound over the coming concerns as EU negotiations continue, and any further polls indicating support for a Leave vote could add to the pressure on the pound.





EUR – Data out last week were mixed. Spanish Manufacturing PMI rose more than expected, and Unemployment Change figures in both Spain and Germany were better than forecast as well. The Eurozone’s Unemployment Rate fell to 10.4%, its lowest level in approximately four years. ECB President Draghi said last week that low global inflation would not be an excuse for inaction from the ECB. The European Commission released its Economic Forecasts, which included a projection of an inflation rate of only 0.5% in the euro area in 2016, rising to 1.6% in 2017.

This week’s key releases include initial quarterly GDP figures from both Germany and the Eurozone as a whole. Economic growth is expected to hold steady at 0.3% on a quarter-to-quarter basis in both Germany and the Eurozone. Anticipation of possible additional easing from the ECB in March may continue to weigh on the euro this week, and the strength of Friday’s economic growth figures may provide some signals as to the likelihood of any further easing. Continued financial market volatility may see further demand for the euro as a haven currency.






USD – The highlight for the US last week was Friday’s jobs report. Although Non-Farm Employment Change was lower than expected in January, only 151K compared to January’s 262K, the Unemployment Rate dropped to 4.9%, its lowest level in eight years, and Average Hourly Earnings rose 0.5% on a month-to-month basis and 2.5% on a year-to-year basis. The dollar strengthened in the afternoon after an initial dip on the back of the lower Non-Farms figure. Releases out earlier in the week were mixed. Personal Spending, Manufacturing and Non-Manufacturing PMI, Factory Orders, and Unemployment Claims all came in under forecast. Dovish comments from Fed Member Dudley combined with a disappointing Non-Manufacturing PMI figure on Wednesday to weaken the dollar.

While Friday’s jobs report may have given some support to the argument in favour of raising interest rates further this year, the timing and frequency of any possible rate hikes remain uncertain. In light of that, Fed Chair Yellen’s testimony on the Semiannual Monetary Policy Report will be of particular interest for signals as to the Fed’s current thinking. March had been considered a potential option for a rate hike, although the likelihood of a move that soon has decreased following January’s financial market volatility. Friday’s Retail Sales may improve slightly over last month’s 0.1% decline. Consumer Sentiment is forecast to tick up again after dipping in January. FOMC Member Dudley speaks again on Friday on household debt and credit, and the subsequent Q&A could provide opportunities for questions on monetary policy.





Regards All.
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