Sterling Strong as Boris Johnson Takes G7 Role
The pound was strengthened on Friday after the Bank of England’s (BoE) governor Mark Carney said that the City can continue as ‘Europe’s investment banker’ post-Brexit. This week’s risk events for the pound are the geopolitical tensions raised at the G7 summit and also inflation reports coming out tomorrow. We’ll see if foreign secretary, Boris Johnson and his American contemporary, Rex Tillerson, can calm the rising Russian tensions that have made global markets nervous.
The US dollar and global markets fluctuated on Friday after President Donald Trump’s first military strike, which overshadowed his meeting with Chinese President Xi. The markets were also briefly subdued by disappointing non-farm payrolls figures that came in at half the volume of new jobs that had been predicted.
Pound Sterling – UK Markets
The pound is holding steady against the euro, in about the same rate it had a week ago, but it’s slipped against the stronger dollar. Sterling’s future value will be determined by the UK’s ability to retain the City’s ability to trade euros. That’s why BoE’s Mark Carney made an impassioned argument on Friday in hopes of convincing UK and EU politicians to strike deals that allow Britain to retain its passporting rights. Three other positive pieces of Brexit news include City of London Corporation policy chief Mark Boleat’s upbeat comments on the state of the UK’s economy as ‘looking better’. And, today Japan’s NHK reports that the IMF is soon going to adjust their UK economic forecast, upgrading it from 1.5% up to 2%. Lastly, the EY ITEM Club said today that robust growth abroad in combination with a weak pound will help the economy expand by 1.8% this year.
Foreign secretary Boris Johnson will work to convince G7 leaders to offer Russia the opportunity to return to the group in exchange for pulling out of Syria. Britain’s diplomatic relations with Russia have been damaged by Johnson cancelling his planned trip to the Kremlin. Geopolitical tensions are mounting as the G7 meets after Moscow and Tehran have threatened to respond with force if the US attacks Syria again. Tomorrow’s big economic event is the release of a series of reports gauging the UK’s inflation rate. It’s expected to rise to 2.2%, as measured by the Consumer Price Index and inflation is forecast to hit 2.8% next year. Wednesday’s unemployment figures aren’t expected to have as large an impact on the pound as inflation.
US Dollar – US Markets
The US dollar is at a 3-week high today, after the conclusion of a successful meeting between President Donald Trump and Chinese President Xi Jinping. The US bombing Syria last week sent a strong signal to North Korea, which rattled their stock market for the biggest losses in a month. The Korean won is down against the US dollar for the fifth day in a row, today. Further tensions are headed their way in the form of several US warships en route to the Korean peninsula today. North Korea is highly likely to launch more missiles on or before 15 April, their most important public holiday, as the US appears to be positioning itself to launch another military attack.
Friday’s US Non-Farm Payrolls put a stop to Americans dreaming that Trump’s presidency would instantly create a surge in job growth and he’d taken credit for an average increase of 236,500 jobs a month this year. The addition of a mere 98,000 jobs in March came as a stunning surprise to economists expecting a rate almost twice that: 180,000 jobs. Trump’s January government hiring freeze impacted March’s hiring, as did the unusually frigid weather. Also, in what’s been called a ‘retail apocalypse’ 30,000 retail jobs were lost as big shops shut in a bid to compete with online shopping. In better news, the unemployment rate fell to 4.5%, the lowest jobless rate in 7 years. This week, the US economic calendar is very busy beginning with Federal Reserve chair Janet Yellen’s answering questions about the bank’s economic policy plans at her speech today.
Euro – European Markets
The euro is weak due to political worries, although there was finally a deal stuck between Greece and international lenders on Friday. Jeroen Dijsselbloem, the head of Eurozone’s group of finance ministers, announced the deal from the finance ministers meeting in Malta. After months of deadlock, the IMF and EU lenders have pressed Greece to carry out reforms to pensions and taxes worth 2% of Greece’s GDP over the next few years.
European populist candidates who’d previously supported president Trump universally condemned his Syrian airstrikes. Nigel Farage had previously shown unwavering support for the candidate as had Italian Matteo Salvini and French Marine Le Pen. The European populists had been expected to ride the coattails of Trump’s surprise win in the US, but they’re condemning Trump’s playing ‘world police’, which is the US’s traditional role. They’re hoping to win voters on a platform of change. There’s little data out this week except the German ZEW economic sentiment report which will most likely show an increase in confidence from 12.8 last month to 13.2.
Other Currencies – Highlights
The Canadian dollar dropped to an 8-month low against its American counterpart when Donald Trump won the US election. This was based on fears that his protectionist policies would be bad for Canada’s trade-intensive economy. Surprisingly, the first shots fired in a protectionist trade war came from the nice Northern neighbour. In February, a new Canadian protectionist policy, known as the Class 7 program was introduced in a move to encourage Canadians to use domestic, not imported dairy products. The use of milk imported from the US had cost Canadian dairy farmers C$231 million a year. Now US dairy farmers are asking Trump to intervene on their behalf since they’re left with a glut of milk that’s costing them millions in what had been a profitable export. This issue will be taken into consideration as Trump redesigns the NAFTA trade agreement, and could hurt Canadian trade with the US in a punitive response.
This Wednesday, the Bank of Canada (BoC) is scheduled to announce its interest rate decision, which it won’t likely adjust from its current low of 0.5%. There are still as many ‘significant uncertainties’ as the BoC put it at last month’s meeting, ahead for the economy that’s still making a recovery after oil prices fell. It’s not clear how the US’ increasing oil production will impact Canada which exports almost all of its oil to the US. This represented around 43% of all the US’s imports of crude oil. Trump isn’t likely to increase tariffs on Canadian oil, since it would only drive up the price of petrol. It remains to be seen where the new policies will impact the US’s trade partnership with Canada, which is the US’s 2nd largest trading partner, with a total value of goods traded between them valued at $575 in 2015.