Daily Forex Fundamental Overview

Fundamental Analysis

EUR

“Tumbling energy prices are expected to further stimulate private consumption and, with a delay, investment. As external trade is not expected to contribute positively, GDP growth is set to gain traction only slowly, reaching 1.3% in 2016 and 1.7% in 2017”

- European Commission

Industrial production data from France and Italy disappointed. French industrial output dropped 1.6% in December, following a negative reading in November. Analysts, however, had expected a marginal increase of 0.1%. Moreover, manufacturing production declined 0.8% in December, whereas economists had predicted a 0.4% rise. In annual terms, French industrial output decreased 0.7%, compared with a 2.8% gain in November. Preliminary GDP data showed a stable growth in the final quarter of the year, while the Bank of France expects the Euro zone’s second biggest economy to accelerate the pace of growth in the first quarter of 2016. France’s economy expanded 0.2% on a quarterly basis in the three months through December, while on an annual basis GDP rose 1.3%.

Meanwhile, industrial production in Italy, the Euro zone’s third biggest, dipped 0.7% in December, following a negative reading in the preceding month. Analysts had anticipated the reading to pick up 0.2%. On an annual basis, output of Italian factories decreased 1.0% in the reported month, compared with a revised 1.1% gain in November. The Italian economy posted mixed data over the last two months, with both PMI macro indicators showing a weak performance, amid upbeat consumer inflation and an improving jobless rate.

USD

“There is always a risk of a recession...and global financial developments could produce a slowing in the economy”

- Janet Yellen, Fed Chairwoman

While addressing Congress, Fed Chair Janet Yellen said that the central bank is unlikely to reverse its plan to hike interest rates further this year. Yellen stressed that even after the December increase, the stance of monetary policy remains accommodative. The actual path of the federal funds rate will depend on incoming economic data, and policy makers regularly reassess what level of the federal funds rate is consistent with reaching and maintaining maximum employment and 2% inflation.

Yellen welcomed the progress the US economy made toward the central bank’s objective of maximum employment. However, Yellen highlighted that while labour market conditions improved substantially, there was still room for further sustainable improvement. With regards to inflation, the Fed Chair said even though inflation is expected to remain low in the near term, partly due to further declines in energy prices, the FOMC expects that inflation will climb to its 2% objective over the medium term. However, financial conditions in the US have recently become less supportive of growth. “These developments, if they prove persistent, could weigh on the outlook for economic activity and the labour market, although declines in longer-term interest rates and oil prices provide some offset. Foreign economic developments, in particular, pose risks to US economic growth.”

GBP

“This was the third successive month in which factory output had declined, leaving the size of the manufacturing [sector] unchanged in the fourth quarter compared to the third quarter”

- Chris Williamson, chief economist at financial data provider Markit

Britain’s industrial production dropped more than expected in the fourth quarter as the manufacturing sector continued to drag down the UK’s economy. Total production output declined 0.5% in the December quarter, compared with the three month-period ended September. Industrial production plunged 1.1% on month in December as warm winter weather forced a steep decrease in energy output and the low oil price hurt North Sea oil producers. It was pulled down by a 4% plunge in mining and quarrying sector. Manufacturing production, which accounts for around 10% of GDP, contracted 1.7% in 2015 compared with the previous year, remaining 6.5% below the total it reached before the 2008 crisis. Measured on a monthly basis, manufacturing output declined 0.2% in December, compared with analysts’ expectations for a 0.1% gain. According to the Office for National Statistics, total production for the whole of 2015 was 1% higher than in the preceding year.

the date when they expect the Bank of England to begin hiking interest rates. Market derivative instruments now price in a lift as late as mid-2019. According to the preliminary data of UK gross domestic product, released in January, the UK economy grew 0.5% between October and December, faster than the third quarter's 0.4% rate of growth.

•  Download Full Daily Forex Fundamental Overview