22 February 2017
French manufacturing aside, Eurozone PMI flash estimates came in both stronger than expected and improving on last month. Unfortunately for euro bulls, political uncertainty continues to outshine data. Bond yields were under pressure and the single currency was unable to take advantage of the upbeat PMIs as it slipped to fresh early session lows and remained under pressure throughout the day.
In the UK, public sector net borrowing wasn’t quite as positive as expected but with tax revenues at record highs for January, the miss was attributed to new methodology on corporate taxes. Sterling again displayed resilience throughout the day and closed as the strongest of the majors. This was helped by comments from Bank of England Governor carney on Brexit where he said that if the process proceeds “relatively smoothly to an increasingly clear end-point” then that “would be consistent with a higher path of interest rates”.
There was steady demand for the U.S. dollar throughout Asian and the European morning session but we saw a brief dip on weaker than expected PMI flash estimates in both manufacturing and service sectors. However, the dollar regained its composure and ended the day stronger across the board with the exception of sterling.
First up today is the German IFO survey where a slight slowing in business sentiment is anticipated. Yesterday’s PMI flash estimates were broadly positive however so there may be some upside potential in today’s release. UK growth in Q4 is expected to remain at 0.6% as per the initial preliminary reading. Eurozone inflation is a final reading and looks likely to come in at 1.8% on the headline and 0.9% on core, the same as was reported in the flash estimate. Existing home sales is the only data release from the U.S. This evening‘s FOMC meeting minutes take on slightly less significance than normal as we have had Janet Yellen’s Humphrey-Hawkins testimony since which gave a more accurate current assessment Fed mind-set.
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