Retail Sales to Drive Pound
February 17th: Highlights
- Market looking for signs of slowdown
- Consumer supporting economic activity
- EU Backing Greece into a corner
Sterling holds onto Recent Gains
Since the turn of the year there has been much supportive news for sterling, yet it has remained in a relatively narrow three cent range against the dollar.
The economy is performing almost exactly in the manner forecast by Bank of England Governor Mark Carney. Given Carneys track record of dealing with the fallout from the financial market and potential bank failures you would think the market would start to take a little more notice of him. Management by committee, which is what the MPC does, means that an equal voice is given to each member.
Carney’s steady as she goes mantra doesn’t “sell newspapers”! Traders are looking for controversial statements of impending doom or disagreement with policy. The recent murmuring that the rate cut from last July will need to be reversed “sooner rather than later” is quotable and draws attention.
Given the potential headwinds facing the U.K. economy from Brexit as Article 50 is triggered, whilst we don’t need to “batten down the hatches”, a cautious approach is definitely what is needed. It would not be a good signal to send to the market to hike rates only to have to adopt an easier monetary policy in the face of Brexit negotiations stalling or turning ugly.
Confidence in the central bank to take necessary steps to ensure Government policy is implemented is vital its relationship with the administration. This relationship is starting to come apart at the a seams in the U.S. where there is open hostility towards Fed policy. Members of the House of Representatives are pushing for an end to the American version of ultra-easy monetary policy but, again, the performance of the economy is virtually in line with what has been predicted by the FOMC and the policy decisions it has implemented.
As we enter a long weekend in the U.S. (It’s President’s Day on Monday!) the calendar is light but the market remains braced for further fallout from the President’s inner circle and Trump’s heavy criticism of the media.
Not a single Euro More!
In negotiations with the EU over the next stage of the Greek bailout Tsipras has refused to subject his country to any more austerity. Greece has 25% unemployment, zero economic growth and a population that has seen public services and pensions frozen for longer than most people care to remember.
The Populist wave of support that swept Tsipras to power remains solid but Greeks expect their leaders to stand up to the EU. In another life, Greece would have defaulted on its debt, devalued its currency and be on its way back to health by now but the EU straightjacket punishing the population is wearing more than a little thin.
“The Greek government is negotiating with responsibility and resolve … but all of that must, however, be without any additional burden, and without additional costs for Greek society.” The definition of responsibility does not translate well between Greek and German. The EU expects a resolution (which generally means that Greece accepts the decision of the EU) by the time Finance Ministers meet next week but, with positions becoming more entrenched, hope is fading fast.
Drop in Commodity prices yet to hit AUD
The Reserve Bank of New Zealand left rates unchanged at their most recent meeting.
The two economies are closely tied to each other given their reliance on commodity exports. The Australian Dollar is often used as a proxy for the Chinese economy. China sucks in imports of raw materials from Australia and any change in economic activity there has a direct impact on the AUD
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”