The US Dollar Ends the Week on a Strong Note
What’s been happening?
Pound Sterling – UK Markets
The British pound stayed relatively calm against both the dollar and the euro on Friday amid a lack of macroeconomic data releases and fresh headlines surrounding Brexit. For the week, the GBP lost more than 1% vs the USD as it struggled to find demand due to Brexit uncertainty and the Bank of England’s downward revision to 2019 growth expectations. In its Quarterly Inflation Report on Thursday, the BoE announced that it slashed the 2019 growth forecast to 1.2% from 1.7% in November’s QIR.
Over the weekend, The Guardian reported that a cross-party group of MPs were drafting a plan to end the Brexit dreadlock. According to the article, the new plan would approve British Prime Minister Theresa May’s revised Brexit deal in exchange for another referendum asking the public to confirm this decision or stay in the EU. Ahead of his meeting with British Brexit Secretary Barclay on Monday, the EU’s Chief Brexit Negotiator, Michel Barnier, reiterated that the EU would not reopen the Withdrawal Agreement in a tweet. “But I will reaffirm our openness to rework the Political Declaration in full respect of EUCO guidelines," Barnier said.
US Dollar – US Markets
The US Dollar Index, which tracks the dollar’s value against a basket of six major currencies, finished the 7th day in a row in the positive territory on Friday and posted its largest weekly percentage gain since July as investors continued to stay away from risk-sensitive European and Antipodean currencies. Earlier in the day, St. Louis Fed President James Bullard said that the Fed moved into a more dovish direction and argued that the bank should keep rates unchanged for a while. “The Fed is likely to miss its 2% inflation target for an eighth straight year in 2019. Rate increases so far have already been sufficiently pre-emptive over the last two years to contain upside inflation risk,” Bullard further added in his speech about the economic outlook and monetary policy at St. Cloud State University.
Euro – European Markets
The Destatis on Friday announced that the trade surplus in Germany increased to €19.4 billion in December from €18.9 billion November and surpassed the market expectation of €18.4 billion. However, the shared currency failed to take advantage of the upbeat data as Italy’s the National Institute of Statistics announced that the industrial production in January declined by 0.8% to highlight the economic slowdown in Italy. Following the dismal data, many experts warned against the possibility of the Italian economy contracting for the second straight quarter in Q1-2019.
The 10-year Italy-Germany bond yield spread continued to widen and weighed on the shared currency, which fell to its lowest level vs the dollar in two weeks. Against the pound sterling, the euro closed the week virtually unchanged.
What’s coming up?
UK: The UK’s Office for National Statistics will publish its GDP growth data (preliminary) for the fourth quarter, which is expected to retreat to 0.2% on a quarterly basis from 0.6% reported in the previous quarter. The report will also include total business investment, industrial/manufacturing production, and trade balance data as well.
US: The U.S. Bureau of Labor Statistics will publish the unit labor costs data for the fourth quarter on Monday.
EU: There won’t be any macroeconomic data releases from the euro area on Monday. However, investors will be looking for headlines about eurozone’s recent economic performance coming from the Eurogroup meeting.