Sterling Strong as UK GDP Slows
The Pound recovered quickly to the Euro, which surged after the European Central Bank’s (ECB) statement left analysts convinced that the ECB will tighten its monetary policy this year. Today, the UK’s fourth quarter GDP figures were stronger than had been anticipated, coming in at the same rate as the previous quarter. Annual growth for 2017 was slightly slower than was seen the previous year, which marked the slowest UK economic expansion since 2012.
The Euro’s strength was given a boost after ECB president Mario Draghi’s statement failed to convince the markets that the central bank’s monetary policy will remain unchanged. US president Donald Trump is the keynote speaker at the World Economic Forum in Davos, where he will most likely promote his “America First” agenda. His comments about wanting a stronger Dollar lifted the currency which had slipped after treasury secretary Steven Mnuchin praised the merits of a weaker Dollar.
Pound Sterling – UK Markets
The Pound has steadily rising against the US Dollar, with the exchange rate set at $1.42. Sterling is holding steady against the Euro, with the exchange rate at €1.14.
Today, the Office for National Statistics (ONS) release of the UK’s Gross Domestic Product (GDP) for the last three months of 2017, shows growth was slightly better than the increase of 0.4% that had been expected. The boost to 0.5% came from services and manufacturing, while consumer spending sectors slowed. Year-on-year, the UK’s economy grew by 1.5% for the quarter. Annual growth slipped from 1.9% in 2016 to 1.8% for last year, due to the impact of the Brexit vote on inflation and business investment. The ONS noted the figures point to slower, uneven growth across the UK economy.
Yesterday’s release by the Confederation of British Industry shows that January sales have grown modestly so far, at a slower pace than had been expected. Sales in December had registered at 20%, and January’s fall to 12% indicates sales were at their weakest levels in four years. CBI noted that “higher inflation and low wage growth” will “continue to weigh on sales growth in the retail sector.”
The British Bankers’ Association (BBA) Mortgage Approvals for December 2017 slipped to a rate of 36,115, down from November’s figure of 39,007. According to UK Finance, this marks the lowest level of mortgage approvals by British banks since April 2013. The approval rate is 19% lower than it had been a year ago and has been blamed on November’s rise in interest rates. Also, annual growth in consumer credit was down from 0.8% to 0.7%.
US Dollar – US Markets
The US Dollar remains weak against the Euro, with the exchange rate down to €0.80. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, is slightly improved from yesterday, with a reading of 89.96.
The major data release from the US will be the fourth quarter Annualised GDP, due out later. There is expectation for the economy to grow by 3% for the quarter, which would meet president Trump’s target and also be the first time since 2003, when growth of 3% or more has been reported for three quarters in a row. Market analysts don’t expect GDP to be as strong in the first quarter of 2018, due to the impact of cold weather slowing consumption.
Yesterday’s Commerce department report showed that December’s sales of new single-family homes fell by the largest drop in nearly a 1 ½ years. Sales fell by 9.3% to a seasonally adjusted rate of 625,000, which was larger than the predicted fall of 7.9%. New homes account for 10% of the housing market. The decline was likely to have been a slowdown in replacing homes that were damaged by floods caused by severe hurricanes last year.
The number of workers filing for Continuing Jobless Claims rose from last week’s 45-year low, according to data from the US Department of Labour. Since the number of claims was less than had been anticipated, the figures suggest tightening labour conditions. Initial claims for benefits increased by 17,000 to a seasonally adjusted figure of 233,000 for the week ending on 20 January. In the previous week, claims fell to 216,000, which was the lowest level since January 1971. At 4.1%, US unemployment is at a 17-low year.
Euro – European Markets
The Euro is trading higher against the US Dollar, with the exchange rate set at $1.24. The exchange rate was very briefly up to $1.25, after President Trump said he wanted to “see a strong Dollar.”
The Euro was supported further, after ECB president, Mario Draghi was unable to dispel hopes about an upcoming adjustment to the central banks stimulus programme. The single market currency surged to a new three-year high after Draghi’s policy address repeated his message from September that the central bank intends to keep its stimulus policy for as long as possible. Draghi tried in vain to keep investors from increasing the Euro’s value, describing the Euro’s volatility as a “source of uncertainty,” requiring further monitoring.
The multiple causes for the Euro’s recent strength include the 11 January release of the ECB’s December minutes which indicated plans to revisit the bank communications stance in “early” 2018. This will likely be in March, and Bloomberg reports that some ECB officials are targeting June for the timing of a policy shift. Another factor is the “strong and broad growth,” Draghi acknowledged in his speech.
Consumer Confidence is France slipped very slightly from a reading of 105 down to 104, as reported by INSEE today. This week, Eurozone Consumer Confidence rose to a near-record high for January. The confidence indicator jumped from 0.5 points in December to a figure of 1.3, sweeping far past the predictions that it would rise by only 0.1. Analysts from Pantheon note that the reading will hit the record high recorded in 2,000 if the current momentum is sustained.
Other Currencies – Highlights
Sterling slipped against the Australian Dollar, exchanging at 1.76 AUD. Economists from Capital Economics have said that Australia will benefit by an increase of just 0.5% of real national income by joining the Trans-Pacific Partnership. Of the 11 nations participating, the country will gain the smallest increase in national income.
The Pound fell against the New Zealand Dollar, trading at 1.93 NZD. Weak inflation data released this week pulled the value of the Kiwi down. The unexpected fall in prices was caused by retail prices rising by 0.1% compared to an increase of 0.5 % in the previous quarter. Food prices fell by 1.7%. The deceases were only slightly offset by petrol prices rising by 6.1%.
The Pound is steadily rising against the Japanese Yen with the exchange rate set at 155.54¥. Government data on inflation showed no improvement in December’s core price which rose by 0.9% year-on-year, which is unchanged from November’s reading. This remains much lower than the Bank of Japan’s targeted 2% goal, pushing back any plan to tighten monetary policy.