Inflation figures for the UK, EZ and Canada, will impact on currency markets, while the BOC announces its latest interest rate decision

Jan 20 • Market Commentaries • 907 Views • Comments Off on Inflation figures for the UK, EZ and Canada, will impact on currency markets, while the BOC announces its latest interest rate decision

Global markets roared back into life during Tuesday’s sessions as US equity markets reopened after the Martin Luther King Day national holiday on Monday.

By the time the London-European markets opened, Asian equity markets had experienced mixed fortunes; the leading Chinese index CSI 300 closed -1.47% down the day after China posted better than forecast GDP figures.

In comparison, other Asian equity markets rallied; Japan’s Nikkei 225 closed 1.39% up, and Hong Kong’s index (the Hang Seng) ended the session up by 2.70%, despite HK publishing the worst unemployment figures seen in sixteen years.

Hong Kong unemployment figures hit yen and should cause concern for the broader economic region

At 6.3% the HK unemployment rate increased from 6.3% in Q3. The political unease and COVID-19 related business closures caused a significant increase. The January 2020 rate of 3.4% provides a sobering comparison with the current rate. During the day’s sessions the yen fell, at 20:30 UK time USD/JPY traded up 0.19%, EUR/JPY up 0.60% and GBP/JPY up 0.57%.

European equity markets closed down on Tuesday 19. The ZEW economic sentiment readings beat forecasts, Germany’s coming in at 61.8 ahead of the 60 predicted by Reuters, with the broader EZ reading at 58.3 rising from 54 previously. However, the bullish readings failed to lift sentiment damaged by the recent COVID-19 figures throughout Europe. Germany’s DAX ended the day down -0.24% and France’s CAC down -0.33%.

The UK records its worst daily rise in pandemic death figures

The UK FTSE 100 was -0.11% down, after the UK posted its worst daily death figures during the pandemic so far of 1,610. The UK’s leading index whipsawed in a wide range, oscillating between bullish conditions in the morning and bearish sentiment in the afternoon, ending the day trading close to the daily pivot point.

The euro and UK pound recorded significant gains versus the US dollar on Tuesday. At 21:00 UK time, EUR/USD was up 0.40%, trading in a bullish daily trend and above the third level of resistance R3. GBP/USD traded above R1, in a bullish trend and 0.40% up.

Euro indicates strength versus the US dollar and yen

EUR/JPY traded above R3 up 0.58% and GBP/JPY traded above R1 up 0.57% against a backdrop of yen weakness across the board. EUR/CHF traded up 0.14%, while USD/CHF traded down -0.27%, illustrating the dislocation between dollar weakness and euro strength during the day’s sessions. The dollar index DXY was down -0.29% on the day, up 0.62% year-to-date.

US equity indices closed up on Tuesday, the eve of Joe Biden’s presidential inauguration. Treasury Secretary Janet Yellen, former Fed Chief under the Obama administration, pitched the $1.9 trillion stimulus package as having domestic economic benefits which outweigh the fiscal drag.

Crude oil traded 1.57% up above the $53.00 a barrel handle, due to optimism that the Biden US fiscal stimulus will create increased demand for crude due to global economic growth.

 Economic calendar events on Wednesday, January 19 to carefully monitor

The latest CPI (inflation) figures for the UK and EZ get printed early Wednesday morning. According to Reuters, the UK inflation rate should increase by 0.2% in December, taking the annual rate to 0.6%.

UK inflation may rise further over the coming months if Brexit issues cause consumer prices to rise sharply due to increased import costs. Analysts and traders will experience GBP volatility increasing as the CPI data is published. In contrast, EZ inflation is forecast to fall to -0.3% year on year up to December, a reading that could impact on the value of EUR versus its main peers.  

Canada’s latest CPI figures get delivered to the market during the afternoon. Inflation should come in at 1% yearly, and 0.1% in December, benign readings that are unlikely to alter the value of CAD much.

The bank of Canada BOC will announce their latest interest rate decision during the New York session at 3 pm UK time. The rate is currently at 0.25%, and the forecast is no change. The BOC governor will deliver a statement during a press conference. The interest rate decision, combined with the inflation figures and the monetary policy statement, could affect the value of CAD versus its peers.

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