Post date: 20/04/2018 16:00
After hitting a fresh two year high on USD and a one year high on EUR, the pounds rally has come to an end. Unfortunately, it has suffering tremendously over the last two days of trading. The Sterling strength was based on a host of strong UK data such as:
- A 43 year low on unemployment
- Strong retail sales data
- Increase in average wage growth
Additionally, there was a Brexit transitional deal all but agreed, with the UK being granted single market access for two years before full exit from the European Union.
However, the fragility of the pound was displayed, following poor inflation data and bad retail sales figures. Some people could argue that inflation dropping below average wage growth is good news, with people making more money and goods and services not rising in price. However, if goods are not rising in price and people are not spending despite having more funds available it does not bode well for the economy. Retails sales was predicted to come in at – 0.5%, it landed at a shocking – 1.2%, down 0.8% from the previous month.
Eurozone macroeconomic news has been fairly light this week. The current account data was not enough to provide the impetus Euro bulls with what they are looking for. With no real major announcements scheduled in the Eurozone today, investors will have one eye on next Thursday’s European Central Bank meeting. We expect the ECB to maintain in fairly cautious stance with regards to future policy tightening, given the recent weak inflation and PMI data out of the Euro-area. Investors will be looking to President Draghi's comments over the possibility that the bank could hint in the summer that it is ready to end its QE programme at some point later in the year.
The US Dollar recovered from a three-week low in trade weighted terms on Wednesday. This was helped in part by a broadly weaker Euro. Tuesday was a fairly busy day of action in the US with lots of economic data releases and Federal Reserve member speeches for investors to digest.
The most recent set of housing data was good. Housing starts bounced back in March, increasing 1.9% to a seasonally adjusted annual rate of 1.319 million units, while building permits also jumped by 2.5%. Fed member John Williams also struck a hawkish tone during his speech yesterday. Williams said that he thought inflation in the US was likely to remain at over and above the central bank’s 2% target for ‘another couple of years’, even as the FOMC continues to raise interest rates.