terling had sunk to its weakest position since April 2017 during Asian trading on Wednesday after a sharp drop in the Japanese Yen caused investors to sell those currencies deemed riskier, and flock to the safe-havens. These flows were, however largely reversed over the course of trading on Thursday, suggesting that the initial moves were probably an overreaction. With liquidity still somewhat on the light side as investors return to their desks following the festive seasons, moves have been exacerbated and volatility has been unusually high in the currency markets so far this week.

Meanwhile, yesterday’s construction PMI provided little reason to be optimistic over the health of the UK economy going into a crucial period for Brexit. The index fell to 52.8 in December which, while still comfortably in expansion territory, marked the lowest reading in the measure in three months.

Attention now turns to this morning’s far more significant services PMI which could provide a gauge as to how Brexit uncertainty is impacting British businesses.

Soft Eurozone PMIs stoke growth fears

Similarly to the Pound, the Euro recovered the bulk of its weekly losses against the US Dollar yesterday, with investors unwinding much of their bearish bets against the currency amid returning risk appetite. The common currency was, however, hit by some more bad macroeconomic data this morning that continued to support our call for stable policy from the European Central Bank at least until the final quarter of this year.

The Euro-area’s crucial composite PMI, a weighted index of activity in the services and manufacturing sectors, was revised down from its already lowly initial estimate. This downward revision took the index to 51.1 from the initial 51.3 estimate (Figure 1), its lowest level in 49 months. Now barely in expansion territory, such a weak reading amplifies concerns over an overall slowdown in the Euro-area economy in the latter stages of 2018 that suggests the first interest rate hike from the ECB since 2011 remains a long way off.

We now look ahead to today’s EZ inflation numbers, expected to continue to show an absence of inflation pressure in the bloc.

US labour report expected to show higher job creation

Next up for the major currencies will be this afternoon’s nonfarm payrolls report. This is expected to show that job creation picked up pace in the last month of 2018. Economists are pencilling in another solid job nonfarm payrolls number of 177k, up from November’s 155k. As always, we will be paying close attention to the average earnings number for an indication that low unemployment is feeding its way through to higher wage growth.

The report will be released at 13:30 UK time, as usual.