Brexit Unity Lifts the Pound
Sterling has strengthened on today’s news that prime minister Theresa May’s Chequers meeting has successfully united the cabinet on their Brexit stance. After eight hours of discussion, the prime minister to now ready to set out “a way forward” on Brexit next week. Yesterday, the Confederation of British Industry (CBI) reported that February retail sales fell for the third consecutive month. This was attributed to higher inflation which has trimmed consumer spending to its lowest levels in five years.
The US Dollar has lost a little of its momentum after surging on news that the Federal Reserve (Fed) is prepared to raise interest rates in March. The US labour market is robust, as indicated by the fall in unemployment claims by more than had been expected for last week. US unemployment is again close to the 45-year low that was set in January. The Euro is steady following the European Central Bank’s decision in January that it was too early to alter policy language which it intends to do in the first half of this year.
Pound Sterling – UK Markets
The Pound has pushed back against the US Dollar, with the exchange rate at $1.39. Sterling is also stronger against the Euro, exchanging at €1.13.
The Brexit sub-committee and government are said to have agreed to compromise on the plan for the UK’s future relationship at their Chequers meeting. Sources have reported that the team has agreed to Brexit secretary’s proposal which has been called a Canada plus plus plus trade agreement. A senior Brexiter said: “divergence was the victor” although it is unclear how much the UK intends to vary from EU rules after Brexit.
Yesterday’s CBI Distributive Trades Survey’s retail sales balance dropped to +8 for February, lower than the forecast reading of +13. Investment intentions strengthened to their highest rate since August 2015, as retailors anticipate their business situation will improve in the next three months. Anna Leach, CBI head of economic intelligence said it is harder to find workers, suggesting a jobs-first transition agreement “would provide much-needed clarity.”
Net migration from the EU has fallen to the lowest levels seen in five years, reported the Office for National Statistics yesterday. Total arrivals of EU nationals outnumbered departures by 90,000 in the 12 months to September. Prime minister Theresa May was warned of a crisis in the NHS as they also released figures showing that there are 100,000 vacant positions for doctors and nurses. The NHS employs around 1.2million people, of which over 12% are foreign nationals.
Yesterday, the Resolution Foundation (RF) observed that the GDP revision down to 0.4% indicates the UK’s recovery from the 2008 financial crisis is much slower than previous recoveries. UK output per person is currently 3% above its pre-crisis level nearly ten years ago. RF’s Matt Whittaker noted that at this stage following the 1990 recession GDP per capita was up nearly 20%, and following the 1980 recession, it was up nearly 27%.
US Dollar – US Markets
The Euro has slipped to the US Dollar, exchanging at $1.23. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, is at 89.83.
US unemployment rates fell by more than had been expected, according to yesterday’s release by the US Labour Department. Continuing Jobless claims for the week ending 9 February fell to 1.875million from 1.948million. This was a marked improvement on the forecast figure of 1.930million. Initial Jobless Claims were forecast to rise slightly from 229,000 to 230,000. The fall to 222,000 indicates the labour market is near full employment, with the jobless rate at a 17-year low of 4.1%.
The US Index of Leading Economic Indicators Index for January was 1.0%, coming in higher than the expected figure of 0.7%, marking an upbeat start to the year. The composite measure is used to forecast global economic trends and measure the strength of the US economy. The key index tracking 10 economic metrics rose for the third straight month in January.
Today is quiet day for US data, but there are four more speeches from Federal Reserve (Fed) members. Many are likely to reiterate their earlier assessments that the “continued tightening in labour markets was likely to translate into faster wage increases.” Yesterday St Louis Federal Reserve Bank President James Bullard has he doesn’t believe the Fed should raise in four quarter-point increments this year “unless everything goes perfect.”
Euro – European Markets
The Euro has weakened against the Pound, with the exchange rate set at £0.88.
Inflation slipped to 1.3% in January from December’s rate of 1.4%, according to the Eurozone Consumer Price Index (CPI). Eurostat’s release today recorded the lowest annual inflation rate of -1.5% in Cyprus, with Romania having the highest annual rate of inflation at 3.4%. Persistently weak inflation will further delay the European Central Bank from making any adjustment to their cautious monetary stance.
The Euro briefly rose and then fell lower, on the release of the European Central Bank’s (ECB) January monetary policy meeting minutes. The governing council continued to make preparations for a shift in policy language in the first half of the year, but agreed in their 24-25 January meeting that it was too early. The ECB decided that the wording should evolve gradually and remain in line with rising inflation.
Foreign trade fuelled a 0.6% expansion in Europe’s largest economy, according to Germany’s Gross Domestic Product (GDP) for the fourth quarter of 2017. The Federal Statistics Office said exports rose by 2.7% and imports climbed by 2.0%. Neither private consumption nor gross capital investment contributed to growth, while increased government spending added 0.1%.
Other Currencies – Highlights
Sterling is higher against the Australian Dollar, with the exchange rate at 1.78 AUD. 6,000 National Bank of Australia (NAB) employees are leaving their jobs this week after the cuts were announced in November. One in five of NAB’s workforce is being replaced by software that takes over increasingly complex tasks.
The Pound is stronger against the New Zealand Dollar, exchanging higher at 1.91 NZD. New Zealand’s Retail Sales for the fourth quarter of 2017 surged to 1.7% from the previous quarter-on-quarter increase to 0.3%, beating the expected rise of 1.4%.
Sterling has risen against the Canadian Dollar, exchanging at 1.77 CAD. Canada’s December Retail Sales unexpectedly declined after climbing for the previous three months, according to data from Statistics Canada. The decrease by 9.1% in electronics and appliances caused the 0.8% drop, the largest decline since March 2016.