Morning Report: 23 February 2018

February 23, 2018

GBP Sterling has had an indecisive week, trading only slightly lower against USD and higher against the euro. Yesterday’s updated Gross Domestic Product data confirmed what was hinted at by retail sales and survey data: the economy slowed in the fourth quarter of 2017, bringing the UK to the bottom of the G8 group of major economies for GDP growth. Growth was downgraded to 0.4% in the quarter, while the index for business investment was flat. Theresa May’s Cabinet met at her country residence yesterday to determine a strategy for negotiating Britain’s future relationship with the EU, with one source telling the Financial Times that “divergence has won the day”, suggesting the UK will opt for a Canada style Free Trade Agreement with limited customs alignment and mutual recognition, and as many single market concessions as the EU is willing to give. The Monetary Policy Committee’s David Ramsden will speak at 12:00 GMT.

USD Sentiment rather than fundamental data or policy developments have driven USD this week, and yesterday was no exception as the greenback wobbled before regaining momentum in the evening. Weekly Unemployment Claims were once again extraordinarily low at just 222,000, while the CB’s leading index rose to 1%, indicating that the forward looking economic indicators that comprise the index point towards strong economic growth in the near future. The Fed’s latest Monetary Policy Report will be released today at 16:00 GMT, accompanied by a phalanx of Fed speakers both before and after including Dudley, Mester and Williams.

EUR Yesterday morning’s USD weakness allowed the euro to rally, but the strength was short lived and overnight EURUSD moved back down towards the week lows seen yesterday morning. The widely followed IFO Business Climate survey for Germany fell slightly, suggesting that the rapid growth seen in recent months in the eurozone’s most important economy may be cooling slightly. Meeting minutes from the European Central Bank added little in the way of monetary monetary policy, but did make clear just how concerned Governing Council members were about the prospect of deliberate attempts to create currency weakness from US politicians. Today at 10:00 GMT finally eurozone Consumer Price Index inflation for January will be released.

CAD The loonie made fresh year lows yesterday against USD after disappointing Retail Sales sent the currency South and had it fall through important psychological support levels against USD. Retail Sales shrank 0.8% in December, while a 0.0% change was expected. In a way this contraction may be welcomed by the Bank of Canada, who now see the slowdown they expected in the Canadian economy in the second half of 2017 materialise after all, justifying their “wait and see” approach to monetary policy. Today at 13:30 GMT Consumer Price Index figures are released for January, which are expected to rebound after the sudden drop in the December data.

UK news

  • Reuters: Brexit to shut the door on London house price boom. British inflation will outstrip gains in house prices this year and next, particularly in the capital, as uncertainty over Brexit and weak consumer spending power hits demand, a Reuters poll finds.