Morning Report: 15 January 2018

January 15, 2018

GBP The British pound reached post-referendum highs against the dollar on Friday, although some terrain had to be given up against the euro. Faith in keeping London as the financial capital of Europe has been a key driver for sterling recently, with Theresa May seeking a bespoke trade deal for the financial sector, despite the European Union’s chief negotiator Michel Barnier repeatedly claiming that such a bespoke deal is not possible. Meanwhile, some EU countries signalled they would prefer London to keep its current function as financial centre. This week on Tuesday the Consumer and Producer Price Index figures are published, with the Retail Sales on Friday. Together these will tell us more about the financial state of UK consumers.

EURThe euro is now at the strongest level against the dollar since 2014, after a rally that started on Thursday. The catalyst for the euro strength was the release of minutes from the most recent European Central Bank meeting, which indicated that the European economy has strengthened so much that the ECB’s Asset Purchase Program was now likely to end earlier than originally scheduled. A further boost to the euro came from an apparent breakthrough in German coalition talks, though reports this morning indicate that the Social Democrats are facing grassroots opposition to the agreement. Today at 10:00 GMT the Trade Balance is announced.

USD The USD dollar took a beating at the end of last week, and is now trading at multi-year lows against sterling and euro. Friday nevertheless did bring some data that could become a theme in 2018, namely the Core Consumer Price Index- a key measure of inflation in the US economy- beating expectations. There appears to be a clear strengthening trend in this index, which if maintained should give the Federal Reserve the confidence to potentially hike interest rates a further four times this year. Today at 17:40 GMT Fed speaker Bostic makes his appearance, followed by San Fransisco Fed President John WIlliams at 18:35.

CAD The loonie joined in the collective offensive against the US dollar on Friday and is now trading near the lower bound of the trading range it has occupied since October. Oil prices hit new highs and are currently trading at the most elevated levels since December 2014, which is seen as supportive for the Canadian currency. The loonie this week will mostly be gripped by the Bank of Canada’s Rate Statement and Monetary Policy Report on Wednesday. Markets expect the BoC will deliver a hike after stunning labour market data revealed the Canadian economy is firing on all engines.

UK news

  • Guardian: Thousands of jobs at risk as Carillion goes into liquidation. The construction firm Carillion, which is involved in a host of major government projects such as HS2 as well as vital public services including school dinners, has gone into compulsory liquidation, putting tens of thousands of jobs at risk.
  • Telegraph: North and South Korea hold second talks in a week to discuss Winter Olympics. North and South Korea met on Monday to discuss the Winter Olympics for the second time in under a week, in a diplomatic thaw that has raised hopes of an eventual de-escalation of military tensions on the Korean Peninsula.

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