With the ECB meeting on most people’s radars now (January 19) and the European data showing some signs of both inflation and growth, focus is on comments from German officials putting pressure on Mario Draghi, president of the European Central Bank, to start tapering. It is seen as unlikely at the next meeting, no change in rates and no change in amount of bond purchases, but even if Draghi alludes to a possibility that continued improvement in the economy could lead to a change in stance and policy from the ECB we think the euro could continue its rally. This is particularly evident in GBP/EUR, trading at 1.1460 and with little technical support below 1.1450 until the 1.1250-1.1300 zone.

Brexit speech by British PM keeps pressure on sterling

The upcoming speech, British PM, Theresa May is due to give on Brexit, most likely outlining preferred terms for negotiation along with likelihood of the announcement of the decision of the UK supreme court on Article 50 are keeping both focus and pressure on GBP. Closing at the lows on Thursday, it is clear the uncertainty that Mark Carney, governor of the Bank of England, alluded to is leading to GBP selling, despite consistently good data from the economy. Sadly this is likely to continue as long as the future of the relationship between the UK and Europe remain unclear.

Fed speakers optimistic

Numerous Fed members spoke on the economy on Thursday, with some slightly more cautious comments than expected. All said that the economy was in reasonable health, and most saw interest rate hikes on the way. Chair Janet Yellen was clear about no short term obstacles, implying again that she no longer sees slack in the labour market as a reason not to hike. Other members noted that policies from new President Donald Trump could bring short term growth but medium and long term inflationary pressure. USD rallied through the afternoon but more likely as a correction of the aggressive sell off from Wednesday. In a week when so much economic data has either been overshadowed or ignored, there were a couple of releases from the US which are expected to show some reasonable consumer activity without too much inflationary pressure. Should they come in as expected,  we suggest the USD should finish what has been a very volatile week moving higher against most currencies.