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It's right but it's wrong

One wallow does not make a winter

Not often do currencies strengthen following disappointing domestic economic data but that was the case with the US dollar on Friday. The Greenback added a third of a cent against sterling and took two thirds of a cent off the euro after US retail sales increased by 0.1% instead of the forecast 0.4%.

There was a catch of, course. Well, two actually. Although the monthly increase fell short of the mark, there were upward revisions to earlier data and sales in August were up by a beefy 6.6% from the same month last year. Ninety minutes later the University of Michigan published the provisional result of its consumer survey. It put confidence at 100.8, the second-highest level since 2004 and beaten only by the 101.4 recorded this March.

Overall, the figures suggested that the US economy is continuing to perform strongly in the third quarter and that the Federal Reserve has no reason to have second thoughts about pursuing its policy of raising interest rates gradually but steadily. The dollar was Friday's top performer, strengthening by an average of 0.5%, though that still left it a net 1.3% lower on the week against sterling.

Central bank ripples

There was much growling in some of Friday's newspapers about Bank of England governor Mark Carney's support for "Project Fear". Apparently he had told Theresa May's cabinet that house prices would fall by 34% in the event of a no-deal Brexit. It turned out that was only half the story.

The governor's cabinet briefing in fact related not to his personal expectations but to a stress test carried out on the commercial banks, to find out whether they would be able to survive a cliff-edge Brexit. Reassuringly, they would. As Dr Carney put it the following day during a speech in Dublin, "Our job, after all, is not to hope for the best but to plan for the worst."

On the subject of monetary policy the Bank of England and the European Central Bank were quiet on Thursday, as expected. The limelight was stolen by the Central Bank of the Republic of Turkey, which raised its benchmark one-week lending rate from 17.75% to 24%. The 625 basis-point move was bigger than expected, and sent the lira higher. This morning, though, the 3.6% gain which it enjoyed is beginning to look temporary.

Euroland inflation

Today's only big-ticket statistic is euro zone inflation, forecast by analysts to remain unchanged at 2.0%. After that, there is nothing of any real consequence until tonight, when the Reserve Bank of Australia releases the minutes of its policy meeting.

The other ecostats on today's agenda range from Italy's trade surplus to Canadian investment flows. None has any market-moving potential.

Keep an eye out, though, for developments on the Trump trade war front.  The latest from Washington is that the possibility of talks with China does not preclude the imposition of new tariffs. However, they might be at a rate of 10% instead of the 25% talked about a fortnight ago.

USD ignores August retail sales and wins the day

USD ignores August retail sales and wins the day

GBP ignores BoE stress test story

GBP ignores BoE stress test story

EUR ignores just about everything

EUR ignores just about everything

TRY enjoys temporary boost after 625 basis-point rate hike

TRY enjoys temporary boost after 625 basis-point rate hike

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