EURUSD on the front foot
Equity markets recovered strongly on Friday having been under the cosh for much of last week, while Asian stocks posted solid gains overnight led by the Nikkei in Japan. European equities have opened in positive territory this morning and the US looks set to follow suit later today. The dollar is under some pressure in this ‘risk-on’ environment, with EURUSD rebounding to around $1.1860 from lows late last week of circa $1.1760. Sterling though is little changed from Friday’s closing level against the dollar at just under $1.36, and has weakened to about £0.8725 versus the euro, as continuing political uncertainty in the UK weighs on the currency. Meanwhile, it is an important week ahead in terms of US economic data with employment and inflation reports for January due on Wednesday and Friday respectively.
The main US equity market indices gained between 2% and 2.5% on Friday, reversing a good chunk of their fall over the previous few sessions, while European stocks closed around 1% higher on the day. Japan’s Nikkei is up almost 4% overnight in response to the landslide victory for the ruling LDP in the weekend’s election, with Asian stocks generally chalking up solid gains. In government bond markets, US yields backed up on Friday, partially reversing Thursday’s sharp decline in yields, while German yields were little changed on the day and, indeed, on the week as a whole. UK short-dated yields extended their post-BoE meeting decline on Friday to end around 10bps lower on the week, though yields across the curve are edging higher this morning amid ongoing domestic political woes.
It was a very quiet end to the week in terms of economic data. The only release of note was the University of Michigan’s consumer confidence survey in the US, which showed sentiment rising for a third consecutive month in February albeit remaining well below year earlier levels. Meanwhile, Fed member Daly says she remains more worried about downside risks to the labour market than upside risks to inflation and, hence, expects the central bank to lower interest rates somewhat further this year.
Looking to the week ahead, as mentioned, the key economic data releases are the employment and inflation reports in the US on Wednesday and Friday respectively, while we also get GDP for Q4 2025 in the UK on Thursday. There are a number of ECB members (particularly) scheduled to speak over the course of the week as well.