There was improved risk sentiment in the markets today, spurred by comments from European Central Bank President Mario Draghi on Thursday to support the Eurozone economy. The ECB chief signaled that more stimulus measures could be deployed, due to low inflation in the Eurozone. Draghi stressed again the ECB’s ability to act during a speech today at the World Economic Forum in Davos.
The expectations of more easing (which some expect to come as soon as March), helped lift European equity markets today, leading to a flow out of safe haven assets.
As a result of risk appetite, the yen weakened and there was a bounce in risk currencies, especially commodity-linked currencies like the Australian and Canadian dollars. The loonie benefited from a bounce in oil prices as well, which traded above the key $30 a barrel. The dollar rose back above 118 yen
Economic data out of Europe today included Eurozone services, manufacturing and composite PMI data for January, which all came in weaker than expected, adding to additional pressure on the euro. The single currency fell to the lower $1.08 range versus the dollar, while against the pound, the euro dropped below 76 pence.
UK data releases today were mixed. Government borrowing data was better than expected in December but retail sales fell 1% month-on-month in December, well below the -0.3% forecast. The weak sales number was partly due to adverse weather in the UK recently.
Sterling had a better day against the dollar and against most of its major counterparts. This was partly due to the rally in stock markets and also due to the drop in the EURGBP pair, as the euro fell across the board. Cable appears to have found a base at the key $1.41 level.
Data out during the US session included Canadian inflation and retail sales numbers, while the US published existing home sales and the Markit flash manufacturing PMI.
With crude oil rallying 5% on the day, markets did not pay too much attention to the Canadian retail sales and CPI report, although the better data did help support the loonie. Canada’s December inflation rate was the fastest in a year and rose 1.6% from a year ago, following the prior month’s 1.4% year-on-year. On a monthly basis, CPI slipped 0.5% last month compared to a 0.4% fall expected. Canadian retail sales jumped far more than expected in November, up 1.7%, beating economists’ forecasts for a gain of 0.2%.
US existing home sales bounced back in December from a steep plunge in the previous month. In November, home sales fell to 4.76 million but rose 14.7% to an annualized rate of 5.46 million in December. Other data out of the US included the Markit flash manufacturing PMI which came in at 52.7 in January compared to the 51.2 reading in December.
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