Dollar trades generally softer, in particular against commodity currencies today. Some attribute Dollar’s weakness to news of resignation of US president Donald Trump’s national security advisor Michael Flynn. The developments since Trump came to office raised some doubts on whether his administration is able to push through his expansive policies. But for the time being, Fed chair Janet Yellen’s testimony to the Senate is the main focus. Markets will look for hints of the chance of a March hike. Also, Yellen’s speech will be scrutinized for her view on Fed’s projection of three hike this year. But overall, Yellen would likely sound noncommittal. And the real test for Dollar would be on the economic projections to be released in Fed’s March meeting. Released from US, PPI rose 0.6% mom, 1.6% yoy in January. PPI core rose 0.4% mom, 1.2% yoy. Both are above market expectations.

Sterling Plummets on CPI Miss

Sterling tumbles broadly today and pared back much this week’s gain. Weaker than expected inflation reading add to the case for BoE to stand pat at least through 2017. UK CPI dropped -0.5% mom in January and rose 1.8% yoy. The annual rate was faster than December’s 1.6% yoy but missed expectation of 1.9% yoy. Core CPI was unchanged at 1.6% yoy, missing expectation of 1.7% yoy. RPI dropped -0.6% mom, rose 2.6% yoy. PPI input rose 1.7% mom, 20.5% yoy. PPI output rose 0.6% mom, 3.5% yoy. PPI output core rose 0.5% mom, 2.4% yoy. House price index rose 7.2% yoy in December.

German ZEW economic sentiment tumbled

German ZEW economic sentiment dropped sharply to 10.4 in February, down from 16.6, and missed expectation of 15.1. German ZEW current situation dropped to 76.4, down from 77.3, below expectation of 77.0. Eurozone ZEW economist sentiment also dropped sharply to 17.1, down from 23.2, below expectation of 22.3. ZEW president Achim Wambach noted that "political uncertainty regarding Brexit, the future U.S. economic policy as well as the considerable number of upcoming elections in Europe further depresses expectations." Nonetheless, he talked down the significant of the deterioration. Wambach also said that "the economic environment in Germany has not significantly worsened."

Other economic data released from Eurozone are generally disappointing too. Eurozone GDP grew 0.4% qoq in Q4, below expectation of 0.5% qoq, slowed from prior quarter’s 0.2% qoq. German GDP growth accelerated to 0.4% qoq, up from Q3’s 0.2% qoq, but missed expectation of 0.5% qoq. Italian GDP growth slowed to 0.2% qoq, down from Q3’s 0.3% qoq, below expectation of 0.3% qoq. Meanwhile, Eurozone industrial production dropped -1.6% mom in December. German CPI was finalized at -0.6% mom, 1.9% yoy.

From Swiss, CPI rose 0.0% mom, 0.3% yoy in January. PPI rose 0.4% mom, 0.8% yoy.

China inflation accelerated

On the dataflow, headline CPI in China accelerated to 2.5% yoy in January, beating expectations of 2.1% and December’s 2.1%. Core inflation, excluding food and energy, improved to 2.2% yoy, up from 1.9% in December. Food inflation rose to 2.7% yoy from 2.4% previously, while nonfood inflation rose to 2.5% yoy from 2% previously. PPI jumped to 6.9% yoy, compared with consensus of 6.6% and December’s 5.5%.Improvement in China’s inflation might prompt the government to consider monetary tightening. Staying in Asia Pacific, the final estimate of Japan’s industrial production expanded 0.7% mom in December, compared with consensus of, and November’s, 0.5% gain. Also from Asian pacific, Australia NAB business confidence rose to 10 in January.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2483; (P) 1.2511; (R1) 1.2551; More…

GBP/USD dips today but stays in middle of range of 1.2346/2705. Intraday bias remains neutral at this point. Price actions from 1.1946 are viewed as a consolidation pattern, with rise from 1.1986 as the third leg. In case of another rise, we’d expect upside to be limited by 1.2774 to bring larger down trend resumption. On the downside, below 1.2346 will revive the case that such consolidation is completed at 1.2705 already. In that case, intraday bias will turn back to the downside for retesting 1.1946 low.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

Economic Indicators Update

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