BoE Boosts Sterling to Dollar Rate
The Pound recovered against the US Dollar following the Bank of England (BoE) governor Mark Carney’s address to the House of Lords, yesterday. Carney indicated that the BoE is prepared to raise interest rates, in order to “focus on returning inflation sustainably to target over an appropriate horizon.” Carney also noted that a “disorderly Brexit looks less likely than before,” which effectively calmed markets after a negative Brexit impact government report was leaked. Sterling has since slipped after EU officials said the City won’t have free trade on financial services after Brexit.
The EU has rejected London’s bid to a bespoke financial services deal, announcing that the UK will not retain its “passporting” access to EU financial markets after Brexit. In Eurozone data, annual inflation fell to 1.3% in January, as had been expected, according to the Consumer Price Index. EU unemployment rates were steady at 8.7% in December, remaining at their lowest levels in nearly nine years. German unemployment for January fell to 5.4%, its lowest figure in over 25 years, indicating strong economic momentum at the start of the year.
Pound Sterling – UK Markets
The Pound has slipped against the US Dollar, with the exchange rate at $1.41. Sterling fell slightly to the Euro, trading at €1.13. Sterling has been volatile today, rising on BoE governor Carney’s speech, it is weaker recently, following fresh Brexit concerns about the City’s financial services.
BoE governor Mark Carney gave evidence about the bank’s Brexit forecasting to the House of Lords Economic Affairs Committee, yesterday. He then gave a preview of next week’s BoE monetary policy, noting that wages gradually rising is a sign the UK labour market “has continued to tighten.” He expects pay rises to outpace inflation this year, which would bring back real income growth. After raising interest rates in November for the first time since 2007, the BoE appears to remain on course for raising them again over the next three years.
UK car production has fallen for the first time since 2009, due to concerns about Brexit and the decreased demand for diesel vehicles. According to a report by the Society of Motor Manufacturers and Traders (SMMT), demand for British-made cars decreased by nearly 10% in the UK and 1.1% abroad. In 2017, 1.67 million cars were produced which was around 130,000 less than had been forecast. SMMT CEO Mike Hawes called on the government to provide “urgent clarity” on a transitional Brexit deal, after the report showed that auto company investment fell by 34% last year. In 2016, British automakers invested a total of £1.66bn which was down to £1.1billion last year.
The major topic discussed in the House of Lords yesterday, was the Brexit impact paper, which was leaked by Brexit minister David Davis’ office. The paper warned the UK economy would be least negatively impacted by continuing to trade in the single market, which has sparked calls to join the European Free Trade Association. Labour MPs urging the government to publish the paper, were told they would have a full impact analysis prior to voting on the final Brexit deal. Brexit Minister Steve Baker, said publishing an analysis “while negotiations continue,” would not be in the national interest and economic forecasts are “always wrong.”
In the House of Commons yesterday, MPs heard new evidence regarding collapsed construction firm Carillion. The firm paid out over £550m in dividends since 2010, while they were running up a pension deficit of £587m. The Insolvency Service said Carillion is more complex than the average investigation, which usually concludes after 21 months. They also said the official receiver will investigate the causes of the firm going into liquidation, the conduct of directors, remuneration and pension scheme payments.
US Dollar – US Markets
The US Dollar has lost ground against the Euro, with the exchange rate set €0.80. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, is lower, at 88.97.
In president Donald Trump’s first State of the Union address yesterday, he focused on his “America First” agenda for most of his lengthy address, taking credit for many positive economic achievements which he largely inherited from his predecessor, Barack Obama. Prior to speaking, he signed an order to keep Guantanamo Bay detention centre open, which has been criticised for its annual budget of $445m to hold only 41 prisoners. Trump called for bipartisan support for his key 2018 project: infrastructure investment of $1.4 trillion.
US retail sales grew by 3.2%, for the week ending on 26 January, according to the Redbook index released by the US Department of Commerce. The year-on-year sales growth represented by about 9,000 large retailers, accounts for over 80% of sales across the US retail marketplace. The previous reading had come in at 3.8%, so the week’s slowdown is only slight.
The major data releases for this week are the ISM Manufacturing Purchasing Managers Index due out on Thursday. On Friday, the US workforce strength will be seen in the unemployment rate and the Nonfarm Payrolls for January. Also, wage growth will be studied for increases that are expected to come as the labour force continues to reach full capacity.
Euro – European Markets
The Euro has risen against the US Dollar, with the exchange rate set at $1.24.
The Eurozone Consumer Price Index for January, showed the persistent challenges the European Central Bank has in hitting their inflation target of 2%. Inflation for January slipped to 1.3% from a previous reading of 1.4%. The Core Consumer Price Index fared a little better than the expected reading of 1.0%, coming in higher at 1.2%.
Eurostat reported unemployment for December remained steady in the euro area from November, at a rate of 8.7%. This represented slightly over 14 million jobless, remaining at the lowest level recorded since January 2009. Unemployment in Germany hit a new low of 5.4% in January, falling from December’s rate of 5.5%.
German retail sales fell for both the month of December, as well as the year-on-year figures. December sales fell by 1.9%, much more that the expected drop of 0.3%. The releases by Statistisches Budesamt Deutschland, showed the annual reading dropped by 1.9%, far below the expected increase to 2.8% and the previous reading of 4.3%.
Yesterday’s impressive GDP growth figures was seen as an example that the Eurozone economy “continues to fire on all cylinders.” Growth in the 19 countries that use the Euro, increased by 2.5% in 2017. This was matched by economic expansion across the 28-member European Union. However, the strength of the single market currency threatens to cut future export growth.
Other Currencies – Highlights
Sterling is holding steady against the Australian Dollar, exchanging at 1.74 AUD. The Consumer Price Index released by the Australian Bureau of Statistics didn’t hit the expected rise of 2.0% in the cost of goods and services. This weakness will decrease the chances that the Reserve Bank of Australia will consider an interest rate hike this year.
The Pound is exchanging lower to the New Zealand Dollar, trading at 1.91 NZD. Rabobank’s annual Agribusiness Outlook predicts that 20118 will be the second consecutive profitable year for “most New Zealand producers across an unusually broad base of subsectors.”
The Pound is holding steady to the Japanese Yen, exchanging at 153.98¥. Japan’s industrial output in December expanded to 2.7%, sailing past expectations of a rise to 1.5%. This comes as Japan has had 7 straight quarters of economic growth, marking the longest stretch of economic improvement seen in 16 years.