Europe Summary and Highlights 17 January

European morning session

GBP weakened after softer than expected UK December retail sales data which showed a 0.6% m/m decline, taking the underlying 3m/3m trend negative for the first time since June and to its lowest level for a year. EUR/GBP gained 25 pips to 0.8550 before dropping back to 0.8540 by the end of the session.

The USD was mixed, with EUR/USD making modest gains to trade above 1.03, but there was little change in USD/JPY or USD/CHF, and AUD/USD fell back slightly. Other than the UK data, there wasn’t a great deal of news, although the EUR may have got some support from comments from Bunsdesbank president Nagel who said the ECB shouldn’t rush rate cuts. Eurozone final core HICP data was revised down slightly to 0.3% m/m, 2.7% y/y for December.

Asia session

On Friday, we have Japan finance minister Kato saying it is up to the BoJ to decide its monetary policy and trust them to conduct policy appropriately to achieve 2% inflation target. It is nothing new and so far the market is expecting more than 50% that the BoJ will hike in the meeting next week, yet we remain cautious in reading too much into their remark as they have historically not follow through. The 10yr JGB yields have retraced from earlier gains in the week as market participants are calmer after the initial euphoria. USD/JPY is trading 0.21% higher at 155.44 as U.S. Treasury yields outperform JGB yields despite JGB’s attempt to recoup opening loss.

The broader risk sentiment is positive overall. Chinese equities cheered on surprisingly well Q4 GDP data and a slate of solid economic data. Yet, the Antipodeans have fallen against the stronger USD. AUD/USD is down 0.24% to 0.6197, NZD/USD also down 0.27% to 0.5591 while USD/CAD rose 0.06% as oil remains choppy on geopolitical headlines where it seems a cease fire agreement has been reached in Gaza, waiting for a vote on Saturday. Else, EUR/USD is down 0.04% and GBP/USD is down 0.12%.