Sterling has slid to a 7-week low against the US dollar and has lost ground against most of its major peers, as well. Political uncertainty, in tandem with reports reflecting a weakening economy will keep pressure on the pound this month. Today’s release of retail data shows that British consumers are no longer able to keep the economy expanding, as high street spending drops to a 5-year low.

The US dollar has settled into its strong position with the near certainty the Federal Reserve will raise interest rates three times this year, beginning this month. This will keep the dollar strong, especially against Sterling which is expected to shed even more value this month when Article 50 is triggered.

Pound Sterling – UK Markets

This morning’s release of British Retail Consortium (BRC) figures suggest inflation is causing British buyers to cut back on non-food purchases to the lowest levels in 5 years. BRC reports that retailers saw a 0.2% drop in non-food sales compared to the same 3-month period in February last year. It now appears that the continued strength in sales last year was spurred by shoppers buying expensive goods in advance of inflation as they anticipated the pound’s fall would make their biggest purchases more expensive later. This theory is bolstered by Monday’s report by the Society of Motor Manufacturers and Traders that shows private car sales were down by over 4% last month. Retailers warn the chancellor to adjust his plans to raise business rates when he delivers his budget to the House of Commons tomorrow. Already bracing for a difficult year ahead as rising inflation cuts into profits, shopkeepers can’t afford increased tax rates just when sales are sharply down.

Putting more political pressure on the pound, today the Brexit bill returns to the House of Lords as peers vote on an amendment that gives parliament a vote on the final deal. Yesterday’s news that Peugeot agreed to buy Vauxhall raised concerns over the potential loss of 4,500 UK factory jobs. Since the majority of UK manufactured cars are exported into the EU, future trade agreements may dictate whether the factories will move into the continent. A hard Brexit could boost UK operations if there are tariffs for importing cars into the UK, although Opel’s UK profits were cut by the fall in the pound’s value. JP Morgan forecasts a fall in ‘cable’, or the Sterling to US dollar rate due to Brexit. They list the economy slowing due to inflation, business and investor cautions and increasing expectation that leaving the single market will be highly disruptive.

US Dollar – US Markets

The big event for the dollar remains this Friday’s US jobs report which is predicted to come in line with the past 6-month average addition of around 190k jobs. Even if the data is disappointing, it’s unlikely to cause the Federal Reserve to change their mind about making a rate hike when they meet on 14 and 15 March. However, if the 10 March report shows a forecast closer to 205k new jobs, expect the dollar to pop up to new levels, especially against the pound. New orders for US goods were up for the second consecutive month in January.

US trade council head, Peter Navarro speaking in Washington yesterday, said that trade negotiations on NAFTA are poised to begin soon. He said the US would be ‘owned by foreigners’ if the large, intractable trade balance continues, and added that President Trump is focused on free, fair and reciprocal trade agreements. Navarro has said that the US would prefer to negotiate its $65bn trade deficit with Germany bilaterally, separate from EU institutions. Today’s US January trade deficit release is expected to indicate a continued widening in the trade gap, much to Navarro’s consternation.

Euro – European Markets

The EU’s Gross Domestic Product figures indicate that Greece’s economy is suffering its worst contraction since its banking crisis in 2015 when it came close to leaving the Eurozone. Greece’s economy sharply declined by 1.2% in the last quarter of 2016. Yesterday, Greece held a crucial cabinet meeting to find ways to boost investment and return unemployment to the 8% level it held previous to the crisis, over the next decade. Unemployment is now at 23% and nearly 50% among youth. According to a poll released on Sunday, 6 out of 10 Greeks believe the country’s economic crisis will persist for more than 10 years. Also, political jitters increased in France after former prime minister Alain Juppe declined standing in for Francois Fillon, strengthening Marine Le Pen’s lead in the presidential elections.

On Thursday, the European Central Bank’s (ECB) president Mario Draghi will do what he can to drag down the euro, thus keeping German and other EU goods competitive. In keeping interest rates at -0.4%, he’s taking the single market currency in the opposite direction from the one US Federal Reserve chair Janet Yellen is. She’s strengthening the dollar by suggesting raising the rate over the current 0.15%, but the ECB isn’t facing the economic scenario the US is. The ECB will note that inflation has reached the 2% target but will prefer it’s sustained evenly across EU member states before considering tapering Quantitative Easing measures. The only data report of note before ECB’s meeting was today’s 4th quarter European GDP which has come in as forecast, showing 1.7% year-on-year growth, unchanged from the previous quarter.

Other Currencies – Highlights

The Australian dollar spiked against the US dollar and then settled slightly lower today after the Reserve Bank of Australia (RBA) decided to leave its interest rate unchanged. The RBA’s goal in maintaining the record low 1.5% rate, is to let the Aussie dollar return to its recent weakness. This is a strategic move, designed to help shore up Australian exports as the economy transitions away from the mining boom toward a larger services sector. RBA governor Philip Lowe’s neutral statement pointed to exports and non-mining business investments as the bright spots in the economy. He noted the depreciating Aussie dollar exchange rate’s positive effect on the economy and added that ‘consumption growth was stronger towards the end of the year.’

This increase in household consumption kept Australia’s economy from sliding into a recession in the last quarter of 2016. The retail sector is Australia’s second-biggest employer, with 1.25 million workers and annual sales of Aus$290bn. Consumer growth is still hit or miss due to Australia’s record-low wage growth which will continue dampening consumer consumption. Yesterday’s retail report showed a January rebound in sales after 2 months of poor sales performance. January sales rose by 0.5% after a fall of 0.1% in December. Governor Lowe also addressed Sydney’s surging house price bubble, noting that investment was still increasing and this necessitated tightening borrowing supervisory measures.