EUR

Service sector figures for the Eurozone disappointed yesterday. Eurozone as a
whole came in at 52.9 below the expected 53.2. In terms of the larger economies
Germany fell below expectations at 53.1 with predictions of 53.6.

France and Italy both beat forecasts but there figures were below 50 so still
showing a contraction.

Retail sales figures were poor from the Eurozone. Retail sales fell by 1.6% in

EUR

Service sector figures for the Eurozone disappointed yesterday. Eurozone as a
whole came in at 52.9 below the expected 53.2. In terms of the larger economies
Germany fell below expectations at 53.1 with predictions of 53.6.

France and Italy both beat forecasts but there figures were below 50 so still
showing a contraction.

Retail sales figures were poor from the Eurozone. Retail sales fell by 1.6% in
December compared with November, making this a particularly bad figure as this
was over the Christmas period.

Consumers in Europe are still struggling and this adds to concerns that the
Eurozone could move further towards deflation.

There was also talk of new debt relief for Greece. The new terms could include
extending the maturity on their rescue loans and also cutting the interest rate
on some of the previous loans by 50 basis points.

Following all this data, movements on the euro were fairly insignificant as
investors sat on the side lines before todays interest rate decision and
monetary policy statement by the ECB.

GBP

UK service figures disappointed yesterday. The gauge dropped to
58.3 from 58.8 In December. Expectations were of a rise to 59. As the service
sector makes up 75% of the UK economy, the pound continued its weakening trend
for this week off the back of this news.

USD

Employment data disappointed from the US today. ADP payroll figures missed
forecasts causing the US dollar lose some ground after the week’s gains. But
nonetheless the US dollar remains on the front foot this week ahead of
expectations that Friday’s non-farm payroll figures are set to show a massive
improvement from the previous week

Philadelphia Federal Reserve member Charles Plosser, a notable hawk, said the
stimulus which has been supporting the markets should be ended by mid-year. The
Fed has already trimmed its programme twice to $65bn a month. He cites the
improving labour market as the main reason for doing so.

Today

The Bank of England will be updating markets today with their latest interest
rate decision, which is expected to remain at 0.5%; not new news really, so
expect minimal movement on the pound off the back of this.

US initial jobless claims are expected to show an improvement from the week
prior with the number of people filing for jobless claims set to fall by
13,000; as a result we should continue to see the US dollar continue its two
week winning streak.

The main event of today will be the ECB’s interest rate decision and monetary
policy statement. With a risk of deflation, a shaky global growth outlook and a
rise in overnight interbank interest rate between European banks, there are
some in the market suggesting that an interest rate cut could be on the cards
very soon. An interest rate cut would typically devalue a currency.

However today may be a bit soon for that to happen but markets will be looking
towards ECB President Mario Draghi’s monetary policy speech to get a better
gauge what action and when a move on interest rates would be likely to occur.

Key Announcements:

11.00am – EUR – Factory Orders (Dec): Expected to fall to 0.4%.

12.00pm – GBP – BoE Interest Rate Decision: Expected to remain at 0.5%.

12.45pm – EUR – ECB Interest Rate Decision: Expected to remain at 0.25%.

13.30pm- EUR – ECB Monetary Policy Statement.

13.30pm – USD – Initial Jobless Claims: Expected to fall to 335,000