Daily Forex Fundamental Overview

Fundamental Analysis

EUR

"We suspect that the ECB will stress at its January policy meeting on Thursday that it is sticking to its current monetary policy course until it can be sure that the Eurozone is seeing a sustainable increase in Eurozone inflation to close to 2 per cent."

-Howard Archer, HIS Markit

Consumer prices in the Euro zone climbed to a 38-Month high in December in line with analysts’ expectations, official figures revealed on Wednesday. According to Eurostat, the CPI came in at an annualized rate of 1.1%, up from a 0.6% rise in November, and a 0.2% increase registered in the same period year ago. That was the highest reading since October 2013. On a yearly basis, the so-called core CPI, which excludes food, energy, alcohol and tobacco prices, came in at 0.9%, up from the prior month’ 0.8%, while underlying prices advanced 0.4%. Data also showed, the main driver of inflation rise were energy prices, which advanced 2.6% year-over-year in December, up from a 1.1% slump in the past month. In the meantime, non-energy goods prices remained low, falling to 0.3% from 0.5% in annual terms. Nevertheless, the service sector CPI edged fractionally higher to 1.3% from 1.1% in November. In addition, a report showed the inflation rate advanced amid higher prices of transport, vegetables and heating oil, which added 0.21%, 0.07% and 0.05% to the headline figure, respectively.

In the short term consumer prices are likely to fall in January due to seasonal factors. However, the inflation rate is expected to climb significantly above 1.5% going further.

GDP

“With employment levels still close to record levels and unemployment continuing to fall, the latest indicators confirm that the UK jobs market remains a major bright spot for the UK economy ”.

-Suren Thiru, British Chambers of Commerce

The unemployment rate in Britain held steady last month, while the number of unemployment benefit claims declined, surpassing analysts’ expectations. Official data published by the Office for National Statistics on Wednesday showed claims for unemployment aid dropped 10,000 in December, while economists anticipated a gain of 2,500. Though the number of female claimants was 600 higher than men. The November rate was revised down to 1,300 from the originally reported 2,400. Meanwhile, the unemployment rate remained unchanged at its 11-year low of 4.8%, matching market forecasts. However, the number of employed people dropped 52,000 to 1.6 million in the three month period to November, the lowest level since 2006. The ONS also reported the Average Earnings Index increased 2.8% year-over-year. The reading slightly topped economists’ expectations for an increase of 2.6%. Excluding bonuses, earnings advanced 2.7%, the largest gain since mid-2015.

The earnings figure is closely followed by the Bank of England since the Brexit vote. According to the latest inflation forecasts, the current average earnings growth is unlikely to significantly boost inflation, though the weakening labour market is likely to cut consumer spending, harming the economy’s growth outlook.

USD

“The overall narrative is, inflation is accelerating. We’re seeing broad-based, modest increases in prices. The Fed is going to be pleased with these numbers”.

-Tom Simons, Jefferies LLC

More expensive gasoline and rental accommodation boosted US consumer inflation last month, official figures showed on Wednesday. The Department of Labour reported its Consumer Price Index advanced 0.3% month-over-month in December, following the previous month’s 0.2% gain. On a yearly basis, the headline CPI climbed 2.1%, the largest annual increase since June 2014, after rising 1.7% in November. Both readings came in line with analysts’ expectations. Meanwhile, core consumer prices remained unchanged in December from the prior month, climbing 0.2%. Year-over-year, the core CPI grew 2.2%, compared to November’s 2.1% rise. However, the Fed’s preferred inflation measure, the core PCE, remained below the Central bank’s 2% target at 1.6% in December. Last month’s acceleration of headline inflation was mainly driven by higher prices of gasoline and rental accommodation that jumped 3.0% and 0.3%, respectively. Separately, the Federal Reserve said industrial production rose 0.8% last month, compared to November’s downwardly revised fall of 0.7%. The figure came in line with economists’ projections. The Utilities Index contributed most to the December increase, posting a 6.6% monthly rise. The Capacity Utilization Rate climbed 0.6% to 75.5% from November’s downwardly revised 74.9%.

CAD

“Prospective protectionist trade measures in the United States would have material consequences for Canadian investment and exports ”.

-Bank of Canada

As markets expected, the Bank of Canada left its benchmark overnight rate on hold at its January policy meeting on Thursday, where it has been since the middle of 2015. The Central Bank suggested that the economy is likely to get a hit from the President –elect Donald Trump’s protectionist policies. However, the BoC said that the value of any potential damage arising from Trump’s administration cannot be reasonably estimated at this time. The decision to keep the key interest rate at 0.50% was driven by high uncertainty surrounding Trump’s presidency. The biggest concern about Trump from an economic point of view is whether he will introduce high customs duties and review the North American Free Trade Agreement or not, as the US is the main trading partner of Canada. Nevertheless, the US President-elect’s intention to cut the corporate and personal income tax will probably benefit the Canadian economy.

In addition, the Bank of Canada upgraded its economic growth projections for the upcoming years. According to the Bank’s forecasts, the Canadian economy is likely to expand 2.1% in both 2017 and 2018.

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