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Weekly Market Analysis: Which currencies are having a “duvet day”?

Welcome to the Weekly Market Analysis, as the UK endures “National Sickie Day”. The first Monday in February is traditionally the worst day for worker absenteeism as the Christmas bills roll in and the days are shorter and darker, costing businesses about £34 million in wages and lost productivity.
However, the employee who stayed home because they’d “just put a pie in the oven” is to be commended for using Cockney rhyming slang to accidentally reveal the flimsiness of their excuse. But we’re all in the office today, so please get in touch if there’s anything we can help you with.
Yet another Super Thursday ahead for the pound
Sterling got a bit of a boost last week, rising a little off recently-struck seven-year lows, although gains were capped by the Bank of England’s warning that it may hold interest rates for the rest of the year because of risks facing the UK economy.
The pound added two cents against the US dollar by Friday, before sinking later in the session as the Greenback rallied. It was a similar story for the pound against the euro: although it remains barely a cent off its 12-month low, the pound is now trending a little higher from the troughs of 20/21 January. Sterling slid steadily lower against the Aussie dollar to end the week down 1%, but rose to its best level in a month against the weaker Japanese yen (more on that later!).
The start of February means the triple bill of Purchasing Managers’ Index (PMI) reports for the UK economy, with the manufacturing data first out today (Monday, 1 February), followed by construction and service sector figures on Tuesday and Wednesday respectively.
Attention shifts to the Bank of England later in the week because it’s Super Thursday, when the central bank will announce its interest rate decision and release its inflation reports. Governor Mark Carney will also hold a press conference following the meeting.
US non-farm payrolls report could aid surging Greenback
The dollar experienced a surge late last week when the Bank of Japan unexpectedly chose to adopt negative interest rates, just as US gross domestic product figures came in broadly in line with expectations.
The US economy grew by 2.4% in 2015, with growth of 0.7% in the fourth quarter, the Commerce Department said. The Greenback leapt 2% against the Japanese yen in Friday’s session and added nearly 1% against the euro and the Swiss franc. However, the euro was up close to half a cent for the week as the chances of more interest rate rises by the Federal Reserve this year dwindled.
ISM’s manufacturing and service sector PMIs will be in focus this week as investors search for more clues about the state of the real economy in the US. Then on Friday it’s all eyes on the monthly non-farm payrolls report – the report is used as a weather vane by traders, the health of the labour market is key to future interest rate decisions.
Messy data sets give euro mixed signals
The euro was slightly higher against the dollar, but fell against the pound as a mixed set of Eurozone reports offered traders no clear signals. German retail sales fell 0.2% in December, well below expectations, while Spain’s GDP rose by a healthy 0.8%. Inflation data on Friday (29 January) showed prices rose 0.4% in January after a 0.2% gain in December. Like other majors, the euro jumped higher against the weak yen to a one-month high.
European Central Bank boss Mario Draghi is doing the rounds this week with testimony in the European parliament today (1 February) and a speech in Frankfurt on Thursday. German factory orders out on Friday will be the main data event to watch.
Devalued yen just what the banker ordered
The yen plummeted in value on Friday, 29 January, though the sharp loss in value was the intention of the Bank of Japan when it unexpectedly announced the adoption of negative interest rates.
The yen dropped 2% against the US dollar and by more than 1% against the euro as the central bank said it would charge 0.1% interest on a portion of current account deposits banks held with it, and indicated it would reach further into negative territory if necessary. The BoJ was forced to act after inflation was just 0.1% in 2015 – despite its massive asset-purchase programme now being three years old.
It’s now the fervent hope of Prime Minister Shinzo Abe (who lost his economy minister on 28 January to allegations of bribery and corruption) that the enfeebled yen will attract big businesses back to Japan, and that they’ll bring investment, jobs and exports along with them.
Have an excellent week.


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