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Sterling Surges on Record Improvement in Business Optimism, Traders Pare BoE Cut Bets

Sterling jumps broadly today as traders pare back bet on an imminent rate cut by BoE next week. Record improvement in quarterly business optimism is seen as a trigger for the sharp change in expectations. Canadian Dollar attempts to rally after CPI met expectations. But there is no range breakout yet ahead of BoC. Swiss Franc and Yen are the weakest ones as markets seemed to be comfortable with China’s handling of the coronavirus. But the optimism is not much reflected in stocks.

Technically, GBP/USD’s break of 1.3318 suggests that pull back from 1.3284 has completed. Further rise would be seen back to this resistance first. Break will target 1.3514 high. EUR/GBP’s break of 0.8454 suggests that corrective rebound from 0.8276 has completed. Deeper fall should be seen to retest this low. 144.52 in GBP/JPY will be an immediate focus. Break will bring further rebound back to retest 147.95 high. Also, USD/CAD would finally break out of 1.3029/13104 range after BoC.

In Europe, currently, FTSE is down -0.26%. DAX is down -0.01%. CAC is down -0.07%. German 10-year yield is down -0.0078 at -0.253. Earlier in Asia, Nikkei rose 0.70%. Hong Kong HSI rose 1.27%. China Shanghai SSE rose 0.28%. Singapore Strait Times rose 0.21%. Japan 10-year JGB yield rose 0.0038 to -0.002, continuing to fluctuate around 0% handle.

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Canada CPI unchanged at 2.2%, matched expectations

Canada CPI was unchanged at 2.2% yoy in December, matched expectations. CPI common accelerated to 2.0% yoy, up from 1.9% yoy, beat expectation of 1.9% yoy. CPI median slowed to 2.2% yoy, down from 2.3% yoy, missed expectation of 2.4% yoy. CPI trimmed slowed to 2.1% yoy, down from 2.2% yoy, missed expectation of 2.2% yoy.

UK business optimism at highest since 2014, largest positive swing on record

According to CBI survey, UK business optimism jumped sharply to 23% in the three months to January, up from -4% in October. That’s the strongest level since April 2014. the 67% quarterly swing was also the largest on record since 1958.

Anna Leach, CBI Deputy Chief Economist, said: “With business optimism improving at its fastest pace since 2014 and some of the squeeze on investment plans lifting, it’s clear manufacturers are entering the new year with a spring in their step. Firms are now planning to invest more in plants and machinery, which will ultimately help increase capacity and output.

“However, this boost to sentiment belies poor trading conditions over the past quarter, with output and orders still declining. If we are to build on this rebound in optimism among UK manufacturers, it is crucial for the UK and EU to establish a trade deal that supports growth in this sector.”

UK to introduce digital tax in April, US threatens retaliation with auto tariffs

UK Chancellor of the Exchequer Sajid Javid insisted that UK will go ahead with the induction of digital tax in April. He said, at panel discussion at the Davos forum, “It is a proportionate tax, and a tax that is deliberately designed as a temporary tax. It will fall away when there is an international agreement.”

At the same discussion, US Treasury Secretary Steven Mnuchin warned “We think the digital tax is discriminatory in nature… if people want to just arbitrarily put taxes on our digital companies we will consider arbitrarily putting taxes on car companies”. “We’re going to have some private conversations about that… and I’m sure the President and Boris will be speaking on it as well”.

Mnuchin: No deadline to phase 2 trade talks with China

US Treasury Secretary Steven Mnuchin said there is “no deadline” to phase 2 trade negotiation with China. “The first issue that we’re very focused on in the next 30 days is implementing phase 1, then we’ll start on phase 2. “If we get