Dollar Lower Against Euro as Federal Reserve Sounds Cautious

Whilst the pound rallied to an early high of US$1.3050 versus the US dollar on Tuesday, it was unable to hold onto those gains. The pair drifted lower across the US session to close around US$1.30 roughly the same level that it had started at. The pair continues to trade around this level in early trade on Wednesday.

Pound Looks To Inflation Data

The pound soared early on in the previous session after data showed that average real wages, which take into account the impact of inflation, have finally risen above the pre-financial crisis level for the first time. The level of UK employment also rose to a record high of 32.9 million as 180,000 jobs were created in the three months to December, according to data revealed by the Office of National Statistics. Meanwhile the number of unemployed fell by 16,000 and the rate remained steady at 3.8%.

The data shows that the UK labour market has remained resilient despite the domestic political uncertainty and Brexit concerns at the end of last year. This data coincides with a stronger than expected GDP reading in the last three months of 2019 and indicates that business confidence could be starting to turn a corner.

Today investors will look towards inflation figures, as measured by the consumer price index. Analysts are expecting inflation to decline in January -0.4% month on month. This would be short of the 0% growth in December.

No Surprises Expected From Fed

Flows into the safe haven dollar were on the rise in the previous session after coronavirus fears stepped up. Apple warned over profits as iPhone sales and production were being affected by coronavirus disruption. Weak German ZEW data added to evidence that the deadly virus is negatively impacting sentiment across global economies.

Today investors will look ahead to the release of the minutes from the January Federal Reserve monetary policy announcement. The meeting had few surprises, so analysts are not expecting the minutes to contain any major signals. Whilst data has been mixed, the broad assessment is that the US economy is on a solid footing and is in far better shape than the competition.

As the minutes are unlikely to provide much excitement, attention will quickly turn to pmi data due later in the week.


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