Global equity markets came under heavy selling pressure last week after US labour market data came in stronger than expected spurring speculation of a speed up in the Fed’s hiking cycle. The S&P 500 suffered its largest intra-day decline in more than a year dropping by more than 2% and the 10y US Treasury yield hit a fresh four-year high after rising above 2.86%.
USD rallied across the board on the back of the better than expected US labour data and USD seems to have found a floor for now after having declined steadily throughout January.
US nonfarm payrolls for January came in at 200k (consensus: 180k) and average hourly earnings also surprised to the upside coming in at 2.9% y/y (consensus: 2.6% y/y).
This week, US politics is expected to come back into investors’ focus as the current bill to keep the government funded expires on Thursday.
GBP softened towards the end of last week as Brexit hardliners within the Conservative party including Jacob Rees-Mogg and Boris Johnson put further pressure on PM May to take a tougher stance in negotiations with the EU. May faces two crucial cabinet meetings this week and a failure to agree on how to pursue the negotiations with the EU could weigh on GBP.
This morning we get UK services and composite PMI at 9.30. Barclays Research expects services PMI to print unchanged “…torn between weaker consumer facing business and resilient professional services…”.
GBPUSD support comes in at 1.4080 ahead of 1.3980 with resistance at 1.4275 and 1.4350. For EURGBP, support is found at 0.8685 with resistance at 0.8930.
Looking to the week ahead, the key event is the Bank of England’s meeting on Thursday where Barclays Research expects no change to monetary policy. There will also be interest rate decisions by a plethora of other central banks, including the RBA on Tuesday, the NBP, BCB, RBI and RBNZ on Wednesday, Banxico and BSP on Thursday.