Morning Report: 15 February 2018

February 15, 2018

GBP Sterling advanced against USD yesterday after the greenback fell apart in a hectic afternoon session. Little action was seen against the euro. Boris Johnson made a speech in an attempt to urge Remain voters to see the upside in Brexit, and was universally panned by his intended audience, while offering no new policy detail. No mention was made of border issues in Northern Ireland, which will potentially become a sticking point as the Government asserts its right to diverge from EU customs standards.

EUR The euro has been one of the prime beneficiaries of the past 24 hours of dollar weakness, extending its gains versus the greenback this morning. The Flash reading of eurozone Gross Domestic Product in the fourth quarter was unchanged at 0.6%, while the latest eurozone Industrial Production figures surprised to the upside, showing another strong month of growth in December. Eurozone Trade Balance figures will be out at 10:00 GMT today.

USD USD had a chaotic session yesterday afternoon, at first advancing in the immediate wake of the release of US Inflation and Retail Sales data. But the euphoria was very short lived, and by the end of the afternoon the greenback was in full retreat. No cause for the dollar weakness was immediately apparent, and the losses continued overnight and into this morning. One possibility is that yesterday’s weak Retail Sales figures point towards lower growth in the first quarter of this year, and that market participants viewed this as more significant than the upside surprise to inflation reported yesterday. Retail Sales contracted 0.3% in January, following an exceptionally strong end to last year, while inflation rose 0.5%, significantly more than expected. The market reaction suggests participants remain very willing to sell the dollar, and that the prospect of an upside surprise from the Federal Reserve over the next two years is considered negligible despite historically tight labour market conditions, fiscal easing, and yesterday’s inflation beat. Producer Prices will be released today at 13:30 GMT, accompanied by weekly Unemployment Claims and some regional Fed survey indices. Capacity Utilisation and Industrial Production will follow at 14:15.

CAD USDCAD had been uneventful up until yesterday, but the pair burst into life with the release of US data in the afternoon, at first rising before broad USD weakness allowed the loonie to rally to its strongest point since the beginning of last week. The ADP estimate of employment growth in Canada will be released today at 13:30 GMT, followed at 18:30 by a speech from the Bank of Canada’s Lawrence Schembri.

UK news

  • Reuters: Ireland, Britain to seek to re-establish Northern Ireland talks. The Irish and British governments will seek a way to get talks on restoring Northern Ireland’s power-sharing government back on track and neither is contemplating a return of direct rule from London, Ireland’s foreign minister said on Thursday.
  • Guardian: Japan thinks Brexit is an ‘act of self-harm’, says UK’s former ambassador. Japan sees Brexit as an act of economic and political self-harm that will reduce the United Kingdom’s influence on the world stage, says a former British ambassador to Tokyo.

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