Post date: 13/04/2018 16:00
There have been a number of data releases to watch out for this week:
– Monday night we had the (BRC) Like-For-Like Retail Sales data. This came out at 1.4 percent which is seen as positive for sterling.
– Tuesday afternoon we had the NIESR (National Institute of Social and Economic Research) release. It is essentially a prediction on how the U.K economy performed in March and is rarely too wide of the official mark, so had little impact on sterling.
– Wednesday we started to really pick up, in regards to sterling. Despite negative manufacturing and industrial data on Thursday we still remained strong.
All in all, sterling had a very strong week with multi month highs across nearly all currencies. The real driver of this seems to have come from some positive developments in Brexit talks. The UK & EUR have agreed terms on a transitional period between the original two year timeline. This will allow for further negotiations to take place regarding the UK’s future trade relationship with our closest neighbours, among other key facets of the separation. Whilst no decisions have yet been made regarding the specific details of this future relationship, the markets stance seems to have softened and this in turn supported sterling’s recent rise.
The Euro has been trading in an uptrend over the past several months since breaking out in 2017. However, the market is looking stretched and could also be at risk for a pullback. Subsequently a dip in the EUR is expected – which we started to see last week, although it managed to hold strong on Monday. On Tuesday mid-morning we had ECB’s President Draghi speaking and as he usually speaks very strongly on the EUR, we saw a glimmer of EUR strength. On Thursday they released Industrial Production at 10am and ECB Monetary Policy Meeting Accounts at 12.30. However, Draghi failed to comment on Monetary policy. Fellow ECB member Hansson also spoke and was fairly hawkish on the topic of monetary policy. Hansson said that policy changes would have to be gradual, although there were risks of waiting too long to normalise the policy.
The US Dollar was actually broadly stronger last week, with fears over a global trade war easing. The tone really changed on Monday and fear of a full-blown US-China trade war prompted some US Dollar selling, which boosted the GBP/USD. This past week was followed by a new revelation each day, with the FBI firing and the disclosure of classified data hurting.
Trump tweeting about ‘stupid trade deals’ and ‘sending missiles to Syria’ is doing the greenback no favours. Whilst their economy seems to be performing well and they continue to hike interest rates, they finally admit inflation is expected higher throughout the year – hence these planned hikes. So bear this in mind as rate hikes are usually seen as a positive for an economy but in this case it seems different.