Morning Report: 14 March 2018

March 14, 2018

GBP Like the majority of the other G10 currencies sterling was sharply higher against the US dollar yesterday, but traded flat against the euro. Philip Hammond mostly stuck to politics and avoided fiscal policy as much as possible during yesterday’s Spring Budget statement, which contained a minor upgrade to growth in 2018, and a dire productivity outlook for the coming years. Increased political tension between the UK and Russia seems to have gone completely ignored by sterling, as Theresa May must now decide what type of measures her government will take in response to the alleged poisoning of a Russian spy in the UK.

EUR The euro was comfortably out of the spotlight yesterday, and also strengthened against USD amid the latest political drama in the US. German Consumer Price Index inflation has been released this morning at 0.5% in February, consistent with previous estimates, and European Central Bank President Mario Draghi gave an uneventful speech in Frankfurt. Eurozone Employment figures will be released alongside Industrial Production at 10:00 GMT.

USD USD took a sudden, sharp knock yesterday on the news that Secretary of State Rex Tillerson had been fired, and has not yet recovered. Tillerson’s departure raises fresh concerns about protectionist trade and foreign policy, given he was viewed as an independent and somewhat moderating voice. Concerns of a departure of moderate influences in the White House may now intensify, given former Goldman Sachs President and Chief Economic Advisor Gary Cohn announced his intention to resign earlier this month. Retail Sales and the Producer Price Index will be released today at 12:30 GMT.

CAD The loonie slumped yesterday against USD and other G10 currencies after Stephen Poloz cranked up the dovish rhetoric in a speech. Poloz’s speech discussed the labour market, and sent a strong signal the BoC is in “wait and see mode”, hoping that an expansion in the supply side of the economy will be enough to dampen inflation while the Bank takes a cautious approach to rate hikes. Today’s data calendar is empty for the loonie.

UK news

  • Reuters: Britain and Russia brace for showdown as deadline expires for nerve attack explanation Britain braced for a showdown with Russia on Wednesday after a midnight deadline set by Prime Minister Theresa May expired without an explanation from Moscow about how a Soviet-era nerve toxin was used to strike down a former Russian double agent.
  • AFP: Pennsylvania election too close to call as Trump clout tested A closely watched special congressional election in Pennsylvania remained nail-bitingly close early Wednesday — bad news for nervous Republicans who saw President Donald Trump romp to victory there in 2016 and face mid-term elections in November.
  • Financial Times: Measure of US borrowing costs flashes amber A market measure that has become associated with stress in the banking system is flashing amber again — but this time traders say there are new reasons for the elevated cost of borrowing, and the result could be persistently tighter financial conditions for some groups of borrowers.

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