Both the dollar and euro slumped against sterling yesterday as poor sentiment and data served to rattle both currencies.

It was a heavy day on the data schedule yesterday and as we spoke about in the morning update EU CPI was an important. It was weaker than the market had been expecting with the inflation index sitting at 1.6% as supposed to 1.8%. Minutes earlier data from the UK service sector had given GBP a shot in the arm as it showed that the services sector, in particular the High St, had had a better December than analysts had previously expected. This was typified in the increases in share price we saw from Debenham’s (20%) and Next (12%) on the FTSE. Sterling, save for a minor blip in the mid-afternoon, kept rising throughout the day against the euro but left its gains against USD until late.

US data was broadly negative for the greenback as we saw large drops in factory orders, durable goods orders and pending home sales that reinforce our belief that we will see negative growth in every quarter of the coming year. The FOMC minutes of the meeting that saw the Fed drop interest rates to a band of 0 – 0.25% were also broadly negative for the prospects of the US economy. They gave a further nod to quantative easing (expansion of the money supply) as they remarked that they would “consider ways of using its (the Fed’s) balance sheet to further support credit markets and economic activity”.

Data today is light but speculators and traders alike will be keeping a close eye on today’s ADP jobs figure. It is of course a key indicator of Friday’s more volatile Non-Farms payrolls number which some analysts are predicting will show a 500k increase in unemployment solely for the month of December.

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