Daily Market Brief 22 January 2018

Dose of Reality Halts Sterling Rise

January 22nd: Highlights

  • Retail sales data show consumer support failing”
  • Dollar in muted reaction to U.S. Government shutdown
  • Euro treading water ahead of ECB meeting

Retail sales fall by 1.6% in December

The recent rise in the value of Sterling versus, in particular, the dollar was halted on Friday as data showed that the economy is continuing to struggle to make headway. Consumer spending which has been a genuine and tangible support is starting to fail. Fridays release of retail sales data showed that concerns over wage increases, higher interest rates and Brexit led consumers to rein in spending despite the Christmas period.

The pound fell on the back of the data reaching a low of 1.3838. Although it recovered to close at 1.3862, it has resumed its fall as Asia has opened this morning although the range has so far (6.30am) been tight.

This week’s release of employment data could bring a third tangible concern over the pounds ability to rise further following inflation and retail sales. Analysts predict a slowing in the rate of job growth given the already tight labour market and a rate of growth in hourly earnings of 2.3%, unchanged from November. Even though, following last week’s inflation report, the gap between incomes and prices will have fallen slightly, the lack of business investment filtering through into incomes will put pressure on the Government to agree Brexit terms as quickly as possible once talks resume.

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Trump sets new record

Donald Trump is the first President in history to preside over a Government shutdown while his party is in control of the Senate and Congress and the first to see such an action happen within a year of taking office.

The dollar has suffered over the past year falling by more than 11% in the twelve months to Friday. The U.S. economy is growing by more than 3% per annum the highest rate in the G7, interest rates have been hiked three times in a little over a year with another three hikes slated for 2018, yet the dollar continues to slump.

Of course, a weaker dollar was something that Trump called for when he started his Presidency by accusing several America’s trading partners of capitalizing on the strength of the dollar to gain a competitive advantage.

The shutdown of the Federal Government since politicians have failed to agree a budget is further evidence of the divisiveness that the President has brought to Washington. Traders have, however, taken a fairly sanguine approach to the wrangle treating as “just so much political posturing” The Dollar index made a fresh low of 90.15 on Friday but quickly recovered to close at 90.67.

Euro awaits advance guidance from ECP President

The euro traded in a narrow range on Friday and has started this week in a similar vein as traders focus on the possible outcome of this week’s ECB Council meeting and the confirmation of the start of tapering of the Central Bank’s Asset Purchase Scheme.

So far, Mario Draghi, the ECB President has resisted all calls for a tightening of monetary policy, concerned that several of the weaker economies of the Eurozone are not yet strong enough to grow without assistance.

Although macroeconomic data bears out Sr. Draghi’s assertion, there have been a few comments from Council members calling for some pre-emptive action or at least some advance guidance as to when the tapering will commence. Sr Draghi is loath to provide that as he feels that tying the ECB’s hands could be counter-productive.

The single currency closed on Friday at 1.2220, unable yet to sustain a rally above the 1.2280 resistance level. It has opened this morning positively making a high of 1.2274 before drifting back close to Friday’s close. The overall market perception is for a stronger euro throughout 2018 but, so far, the conditions are not present for any rally to be fully sustainable which reflects the ECB’s view of the economy.

This week’s events of note

All eyes on the ECB as the start of tapering could be announced

  • Eurozone: Eurogroup Meeting – Likely to agree the stance of Brexit as talks on transition period are set to start this month

  • Japan: Interest rate decision – No change possible as inflation remains benign
  • Eurozone: Economic sentiment – Continuing to improve
  • UK: CBI Industrial Trends Survey – A fall likely as economic conditions falter

  • EU : Sentiment surveys – Continuing to improve although services outperforming manufacturing
  • UK: Employment report – A mixed bag as claimant count continues to fall but wage growth remains stagnant
  • U.S.: Sentiment surveys – Another mixed bag. Manufacturing output is being while services continues to thrive

  • Eurozone: ECB rate decision – No change in official rates expected
  • Eurozone: ECB Press conference – A possible announcement on tapering of Asset Purchase Scheme
  • UK: Q4 GDP – First cut of final quarter economic growth.
  • U.S.: Q4 GDP – First cut of final quarter economic growth.


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.”