Euro suffers after weak inflation

6 January, 2016

Rob Bastin

As the New Years trading gets under way, we continue to digest daily data releases that are likely to form the short term forecasts for many currency pairings. After poor Manufacturing figures for the UK on Monday, yesterday provided some slightly better PMI growth for the Construction sector, with results posting growth at 57.8, up from 55.3 in November and better than the expected figure of 56. The pound however failed to receive any boost from this announcement as bigger concerns continue to weigh on Sterling such as inflationary pressures and a potential ‘Brexit’ off the back of an EU referendum that could happen this year.

The Euro was the big loser yesterday as latest inflation figures came in shy of expectations showing results of just 0.2% on the year in December, with no improvement to 0.4% as the markets were forecasting. These figures will put further pressure on the ECB to continue to take action in the coming months with their quantitative easing programme in order to meet long term inflation targets of 2%. The news saw GBP/EUR make some welcome gains to a 2 week high with the weaker Euro, but saw cable continue its ongoing negative slide with rates fast approaching the lowest buying levels since 2010.

The day ahead is again full with data with the UK kicking things off at 9:30am with Services PMI figures. Euro-zone Producer Price Index follows at 10:00am. As we go into the afternoon the US markets will awaken and a range of eco stats will be released for the US between 1:30pm-3pm, including ADP employment change, Trade Balance, Services and Non-manufacturing PMI. All of this is ahead of the FOMC minutes tonight at 7pm, where the markets will be looking for indications of any further rate hikes from the Federal Reserve during 2016. With buying rates struggling at present for sterling, make sure you are in close contact with your broker so that we can keep you informed of any spikes to higher levels that are likely to be short lived if presented in the comings days and weeks.