he sole exception was the Japanese yen, which suffered as increasing risk appetite drove traders out of safe-havens. Equities and credit markets worldwide continued to rally in celebration of the signing of the phase 1 trade agreement between the US and China. Emerging market currencies turned a mixed performance, but are generally up strongly so far this year.

We expect currency market volatility to return this week as critical PMI activity surveys are released in the UK, the US and the Eurozone. We expect a strong release in the latter that should, we believe, buoy the euro. The ECB meets on Thursday, but no policy actions or significant changes in its outlook are expected.

GBP

Sterling resilience in the face of decidedly weak economic data last week is remarkable. Industrial production, inflation and retail sales were all weaker-than-expected. As a result, markets are now starting to price in a cut at the next Bank of England meeting at the end of the month.

In spite of this dovish backdrop, sterling ended up nearly flat against both the dollar and the euro. This week, the latest PMI data (Friday) and employment report (Tuesday) are both expected to be relatively strong, which should ease a bit of the negative sentiment around UK fundamentals and be supportive of the pound.

EUR

Our view for Eurozone economic outperformance relative to consensus will be tested this week. The early PMI surveys of business activity for January will be released Friday. We expect a significant improvement across the board on the back of the financial market rallies and general optimism about trade conflicts. This upside surprise in the PMI release could provide a significant boost for the common currency this week.

While the ECB meeting on Thursday is unlikely to generate market-moving headlines, investors will be paying close attention to any comments regarding the launch of the bank’s strategic review, the first such conducted by the central bank since 2003. The debate is expected to cover the topics regarding the structure, timeline and agenda of its future policy meetings.

USD

Aside from the signing of the US-China phase 1 trade deal, the most important news out of the US last week was a softer-than-expected CPI inflation report. Inflationary pressures in the US remain muted, though inflation remains close to the Fed’s target. This means the Fed will not be moving rates any time soon.

This week, the Markit PMI release on Friday should be the main focus for dollar traders. Aside from that President Trump, along with a number of other politicians and central bank heads, will be speaking at the Davros Economic Forum in Switzerland.