Last week, the Sterling made multi-month highs against both the single currency and the US dollar as optimism surrounding the UK’s emergence from lockdown restrictions grew. Prime Minister Johnson will be laying out his roadmap for the loosening of restrictions on Monday evening. In addition, helping to push Sterling higher was the increase in risk appetite. Whilst the optimism has boosted Sterling the UK retail sales figures will highlight the fragility of the economy. Retail sales sank 8.2% in January from the month before, the fastest rate of decline since last April. “The latest national lockdown led to a sharp monthly fall in January’s retail sales, with April 2020 the only month on record to see a bigger slump,” said the ONS’ deputy national statistician for economic statistics, Jonathan Athow. Retailers will be waiting to decipher Prime Minister Johnson’s roadmap to articulate when the high street can reopen and under what conditions.

Concerns in Europe remain regarding the rollout of the vaccination and the ongoing mutations; however, this was not necessarily reflected in the economic data released. The German ZEW economic sentiment index strengthened to a 5-month high and was above consensus forecasts whilst the wider Eurozone index strengthened to 69.6 from 58.3 previously. This was coupled with the flash reading of the IHS Markit Eurozone composite purchasing managers index which rose to a two-month high, albeit still slightly contracting. It is worth noting that the manufacturing PMI rose to a 36-month high.

In the meantime, the US Dollar remains on the backfoot despite positive economic data. US retail sales jumped 5.3% for January after a revised 0.7% decline the previous month and substantially above consensus forecasts of 1.1%. Risk appetite remains supported as minutes from January’s Federal Reserve meeting noted that the economic outlook had improved considerably from December’s meeting. The committee reiterated that the accommodative monetary stance would continue until the Fed’s goals had been achieved.

Looking to the week ahead, the key focus for the UK will be on Monday evening as Prime Minister Johnson will be laying out his roadmap for the loosening of restrictions. He has already said he intends to be “cautious and prudent” and will be “data, rather than date” driven. That suggests the plan will be short on specific dates. The key employment data is also set for release from the UK on Tuesday. In the US, Fed Chair Powell is conducting his semi-annual testimony to Congress on both Tuesday and Wednesday, however, the impact on the market may be determined by whether there is any new information. On Friday, G20 finance ministers and central bankers are meeting via video link. The outcome is likely to further co-ordinate statements welcoming signs of improvement and hopes for the future but also reiterating that economies will continue to need economic policy support for some time.

Monday

  • German IFO survey
  • UK PM Johnson addresses the nation

Following last week’s positive data from the ZEW survey, the market will be keen to see if the German IFO sentiment echoes the same tone. The IFO surveys of about 9,000 businesses including manufacturers, builders, wholesalers, services, and retailers, as a result, provides a good indication of sentiment. Prime Minister Johnson will be laying out his roadmap for the loosening of restriction. He has already said he intends to be “cautious and prudent” and will be “data, rather than date” driven. That suggests the plan will be short on specific dates. The market will be keen to decipher the potential landmark figures for loosening restrictions and potential hurdles.

Tuesday

  • UK labour data
  • US consumer confidence
  • FOMC Chair Powell testifies

Following PM Johnson’s roadmap, the market will be keen to decipher the current impact on employment and how this could be affected moving forward. The BoE has already stated that they are forecasting the unemployment rate to move to 7.5-7.75% range by the middle of the year. The unemployment rate is expected to move higher from 5.0% to 5.1% today. Across the pond, the focus will be on Fed Chair Powell who is due to testify on the Semi-annual Monetary Policy Report before the Senate Banking Committee. The market will focus on his testimony for further clues on the central banks’ view on the economy and for any new information. In the meantime, the US CB consumer confidence figure is due for release which will provide insight following the new Biden administration and vaccine rollout.

Wednesday

  • MPC Member Haldane Speaks
  • Fed Chair Powell Testifies
  • New Home Sales

The BoE Chief economist is due to speak about the changing world of work, wellbeing, and management at a webinar hosted by the Bank of England. His speech will be closely monitored for sentiment surrounding the economy, especially following PM Johnson’s roadmap unveiling. Fed Chair Powell is due to testify again on the Semi-annual Monetary Policy Report, this time before the House Financial Services Committee. The second day of his testimony tends to be less volatile than the first, provided the tone doesn’t change.

Thursday

  • US GDP
  • US weekly jobless claims
  • US durable goods

The second out of three readings of US GDP are set for release and expected to nudge higher to 4.1% for the quarter.  In the meantime, the weekly jobless claims and durable goods will be used as indicators for future growth. Positive reading could weaken the US Dollar further as risk appetite is likely to pick up and due to the accommodative policy stance from the Federal Reserve, interest rates are likely to remain low.

Friday

  • G20 meeting
  • US UoM consumer sentiment

The first day of a two-day G20 meeting is set to take place. G20 is attended by finance ministers and central bankers from 20 industrialized nations and therefore can impact currency markets via its tone and the subsequent effect on risk sentiment. The University of Michigan consumer confidence figure is due for release which will provide insight following the new Biden administration and vaccine rollout.

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