The CBI retail sales index strengthened sharply to 28 in the year to January from 8 the previous month and well above market expectations of 13. The data, however, was inflated by the January 2021 lockdowns and retailers still considered that sales were poor for the time of year. There was also still an important element of caution surrounding the February outlook and markets remained wary over the squeeze on incomes during the second quarter. The latest data on credit card processing indicated that spending had increased in the latest week with further evidence that the Omicron impact is fading rapidly.
With an apparent delay to the Gray report on Downing Street parties, global developments tended to dominate during the day. Overall risk appetite held firm which limited the scope for Sterling selling, although there was further vulnerability against the dollar as wider US gains dominated and Wall Street equities also dipped lower in late trading. Overall, Sterling retreated to fresh 2-month lows against the dollar while the Euro retreated. There was a tentative recovery as the dollar was hit by a limited correction.
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German consumer confidence recovered slightly to -6.7 for January from -6.9 the previous month and above consensus forecasts. The Euro was unable to regain any ground ahead of the New York open and continued to lose ground following the hawkish comments from Fed Chair Powell.
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German Gross Domestic Product Prev 1.7% Exp -0.3%
EUR Consumer Confidence Prev-8.5 Exp -8.5
The initial estimate of US fourth-quarter GDP came in at 6.9% from 2.3% previously and above market expectations of 5.5% with consumer spending growth of 3.3% compared with 2.0% in the third quarter. The data helped underpin the dollar on a short-term basis.
US initial jobless claims declined to 260,000 in the latest week from a revised 290,000 and in line with market expectations while continuing claims increased to 1.68mn form 1.62mn previously. The claims data did little to dislodge expectations of a hawkish Fed stance over the next few months and the dollar maintained a strong tone.
There were also expectations of strong month-end dollar demand given the moves in equities this month and the Euro dipped to 19-month before a slight recovery into the European close. Overall yield expectations undermined the Euro, although with some caution that the currency may be over-sold.
The latest US PCE inflation data will be released on Friday, although the data is unlikely to have a major impact given that the central bank has committed itself to policy tightening. The dollar maintained a firm overall tone on Friday. Markets will monitor any comments from Fed officials to assess whether there is any push back against very hawkish rhetoric. Position adjustment will also remain a significant element on Friday, especially with Ukraine concerns.
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Personal Consumption Prev 0.5% Exp 0.5%