Trade Optimism and Rising T-bond Yields Lift USD
What’s been happening?
Pound Sterling – UK Markets
The British pound came under heavy selling pressure and erased all of the gains it recorded against both the dollar and the euro on Thursday. The data published by the UK’s Office for National Statistics on Friday revealed that retail sales in December declined by 0.9% on a monthly basis despite holiday shopping. “In the three months to December 2018, estimates in the quantity bought decreased by 0.2% with declines across all main sectors except fuel,” the ONS said in its publication. “Looking at annual growth rates, the whole of 2018 increased by 2.7% in the quantity bought; an annual slowdown in comparison with the peak of 4.7% experienced in 2016.”
On Brexit-related headlines, Germany’s Foreign Minister Heiko Maas talked about reopening the Brexit accord in an interview with the public broadcaster. “In the end, it will be about the question whether to reopen the deal which needs the approval of all 27 member states, which means that everyone has to join in. This is what needs to be discussed now,” Maas argued. Meanwhile, a spokeswoman for British Prime Minister Theresa May said that PM May would hold calls with EU leaders over the weekend.
On Sunday, CNN reported that a group of influential cross-party MPs were planning to introduce legislation on Monday to block a “no-deal” Brexit if the government’s withdrawal bill were to be rejected again. Commenting on the report, “Any attempt to remove the government's power to meet the legal conditions of an orderly exit at this moment of historic significance is extremely concerning," a spokesperson for the PM May stated. US Dollar – US Markets
A more-than-1% increase witnessed in the 10-year U.S. Treasury Bond yield boosted the demand for the dollar on Friday and lifted the US Dollar Index to its highest level since January 4th. Reports of China planning to ramp up its imports of American products by more than $1 trillion over a six-year span with an aim to eliminate the trade imbalance seemed to be the main catalyst behind rising bond yields.
Meanwhile, the data published by the Board of Governors of the Federal Reserve showed that the industrial production increased 0.3% in December to surpass the analysts’ estimate of 0.2% and the capacity utilization improved to 78.7%. On the other hand, the University of Michigan’s Surveys of Consumer highlighted that the consumer confidence fell to its weakest level since Donald Trump took the office. “The loss was due to a host of issues including the partial government shutdown, the impact of tariffs, instabilities in financial markets, the global slowdown, and the lack of clarity about monetary policies,” noted Richard Curtin, Surveys of Consumers chief economist.
Euro – European Markets
The shared currency recorded losses against the dollar for the fourth straight day on Friday and recovered modestly from the 2-month low that it set vs the pound sterling on Thursday. The European Central Bank on Friday reported that the seasonally adjusted current account surplus fell to €20.3 billion in November to fall short of the market expectation of €24.1 billion. Earlier in the day, Reuters said that according to the latest poll results, the ECB is now expected to raise its deposit rate in the fourth quarter of 2019 and wait until early 2020 to hile its refinancing rate from 0% to 0.2%. Reuters further noted that more than a third of economists polled saw a 40% chance or more of a recession in the euro area. In the meantime, while speaking at an event in Beijing, China's Vice Premier Liu said that they reached an agreement with Germany to lower market entry barriers and added that both nations were committed to greater financial market connections, but did little to nothing to help the euro gain traction.
What’s coming up?
UK: Rightmove House Price Index will be the only data featured in the UK economic docket on Monday.
US: Martin Luther King Jr. Day.
EU: Germany’s Bundesbank will release its monthly report on Monday and the Destatis will publish the December PPI report.