Modest gains in Europe After Strong Rebound in US & Asia
European bourses are seen making modest gains on the open, in moves that look timid compared to the recovery in the US and Asia overnight. Over in the US the Dow posted gains of 400 points whilst the S&P added 1.4% strongly rebounding from the worst weekly performance in two years, with the best daily performance in two years. Meanwhile, the FTSE is currently up a mere 0.05% and the Dax has actually dropped into the red.
Dollar retreats as risk returns
As the risk trade moves back into prime position and investors move back into stocks, demand for the dollar is waning across the board. Whilst last week’s heavy sell off in equities saw exaggerated volatility, the FX markets were rather sanguine in contrast. However, this could all start to change over the coming days as investors get a taste for risk once more.
Interestingly the sell off in the dollar came despite President Trump's announcement of a $1-$1.5 trillion infrastructure spend. Quite simply there was not enough meat on the bones of this plan to get the FX market excited. The greenback is currently off some 0.3% as we move into the European session taking it back below 90.00. Investors will most likely look to wait to see what the US inflation figures look like tomorrow before resuming any heavy selling.
Euro heading towards immediate target of $1.2250?
The euro is capitalising on the weaker dollar, moving 0.25% higher in early trading, at $1.2225. Dollar weakness and the stabilising of global stocks is enabling to the euro to charge higher. A break above $1.2250 (10 SMA) could see the pair advance to $1.2434.
UK Inflation beats expectations
Headline CPI remained constant in January at 3%, beating expectations of 2.9%. Meanwhile core inflation surprised to the upside, hitting 2.7%, ahead of expectations of 2.6% and ahead of last month’s 2.5%. These figures show that inflationary pressure remains strong in the UK, inflation numbers remaining significantly ahead of the BoE’s 2% target. Following a more hawkish stance from the BoE last week, market participants will be looking at these figures to decide whether they add any level of certainty to an interest rate hike in May
The knee jerk reaction from the pound was to spike higher, hitting $1.39, however, this was short lived and the pound is trading back at levels pre-release of $1.3880 or 0.3% higher on the day. Brexit fears are no doubt keeping any rally in the pound in capped.
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