U.K. Growth upgrade lifts Sterling

Pound rallies to test resistance.

Sterling rose to the top of its recent range yesterday as Chancellor of the Exchequer Philip Hammond gave an upbeat read on the performance of the UK economy in his Spring Statement.

He raised his forecast for whole year growth from 1.4% to 1.5% and cut the level of the expected budget deficit. It had been expected that Hammond would provide a positive view but an upgrade in growth expectations came as a surprise given the headwinds being created by Brexit.

Of course, since no one can really provide a valid judgement on what to expect from the negotiations for the UK to leave the EU, it is probable that Hammond, being a politician, leaned heavily towards the most positive of his analyst’s forecasts.

The pound rallied versus a weakening dollar reaching a high of 1.3996. The reported sell orders at and just above 1.4000 have provided resistance and it may take a further jolt of good news for it to rally further. Versus the Euro, the pound also rallied, making a high of 1.1282. It has remained close to its highs overnight.

With Inflation data due next week, the prospect of a May rate hike from the Bank of England should keep a positive outlook for the pound but it is also subject to Brexit news with the EU summit also being held next week.

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Tillerson pays the Price.

U.S. Secretary of State Rex Tillerson was sacked by Donald Trump yesterday and replaced, subject to confirmation, by CIA Head, Mike Pompeo. The reasons of Tillerson’s departure will take some time to be known officially, if ever, but according to the President it was about “chemistry”.

The spin being put on the President’s actions by Washington reporters is that Trump is determined to “go his own way” in the way in which global affairs are handled and Tillerson was a little too conservative in his views on Russia and North Korea.

It is rumoured that Trump made the announcement via Twitter and only spoke to Tillerson some hours after the announcement.

The dollar reacted poorly to the news and was already on the back foot following benign inflation data that had been released earlier.

Headline inflation was unchanged at 1.8% in February, still well below the Fed’s 2% target and called into question the need for a rate hike next month. It is likely that the Fed will still raise rates, but the dollar could suffer as traders “buy the rumour and sell the fact concerned about when the next hike will take place

The dollar index gave back most of its recent gains, reaching a low of 89.59. It has continued to be under pressure overnight.

Eurozone inflation data to support Euro.

There is an expectation that Eurozone-wide inflation data that will be released later this week will provide a degree of support for the single currency. While it is unlikely that it will be sufficiently strong to cause the ECB President to adopt a more hawkish stance it could be moving in a direction which brings a change in monetary policy later in the year.

The headline CPI number is likely to have risen to 1.2% from 1% in February. The Euro which rose yesterday following events in Washington reached a high of 1.2410 and an upside surprise for inflation could see it test long term resistance at 1.2520. It is unlikely that unless a stronger than expected inflation figure is preceded by more hawkish comments from Sr Draghi who is speaking later this morning, that the single currency will do any more that reach the top of its recent range.

Inflation remains the number one driver for G7 currencies as Central Banks wrestle with accommodative monetary policy decisions that were made as the global economy came close to collapse during the financial crisis.

Analysts models have become unreliable as global inflation forecasts have been missed time and again and Central Bankers search for sustainable growth.