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Worries all round

Downside risks in Euroland

The generally downbeat tone of the words and numbers out of Euroland led to the euro bringing up the rear on Thursday. It recouped some of the losses on Friday, leaving it 2.2% lower on the week against sterling.  

Almost nothing went right for the euro on Thursday. The purchasing managers' index for France's manufacturing sector beat forecast, creeping back up above the breakeven line to 51.2, and Germany's services PMI unexpectedly improved to 53.1. But French services and German manufacturing missed the cut at 47.5 and 49.9 and nearly all of the readings were lower on the month. Markit's report summed up the situation as "Euro area business growth close to stalling at 5½ year low in January".

With the PMIs out of the way it was the turn of European Central Bank president Mario Draghi to stoke the gloom. As the bank left its benchmark rates unchanged Sig. Draghi spoke of economic data that have "continued to be weaker than expected" and risks to growth which have "moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism".

US government openup

After 35 days the US president capitulated on the government shutdown, agreeing to fund the affected departments until 15 February. That was the good news. The bad news was that he will shut it all down again in three weeks' time if he doesn't get the money for his wall.

It is estimated that the shutdown cost the US economy $6 billion, a little more than Trump wants for the next stage in his Mexican Wall project. If the whole thing starts over again in three weeks' time there will be a further cost to gross domestic product.

The PMIs from the States went some way towards balancing the shutdown story. Manufacturing and services came in at 54.9 and 54.2 respectively. Both were higher than expected. The dollar was till the weakest performer on Friday, giving up two thirds of cent to sterling. It is 2.5% lower on the week.

Not crashing out

It is another big week for sterling. Whether it turns out to be a good one or a bad one will depend on what transpires in the House of Commons tomorrow, when Parliament attempts to exert its sovereignty and take back control of the Brexit process.

The latest word on the hard/soft, cliff-edge/sunlit-uplands worry comes courtesy of the Sun newspaper. It reports that the prime minister has "privately" told ministers that she has ruled out a no-deal Brexit. The news had no immediate impact on the pound, which starts today just about unchanged on average from its position on Friday morning.

With no UK data on the agenda for today or Tuesday it will be the build-up to tomorrow's votes that decides sterling's course. The early signs are that it has come off the boil.

GBP nervous ahead of tomorrow's Commons votes

GBP nervous ahead of tomorrow's Commons votes

EUR partially recovers after downbeat Draghi

EUR partially recovers after downbeat Draghi

USD lower after shutdown postponed

USD lower after shutdown postponed

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