Sterling wins again

4 minute read


Chicago Federal Reserve president Charles Evans joined his colleagues yesterday when he said "I think we can easily be patient" in deciding on further interest-rate increases. "We are at a good point to pause." The patience thing has been aired for so long now - it is two weeks since Jerome Powell started the trend - that Mr Evans's comment created few ripples. Speaking separately, Fed governor Randal Quarles expressed optimism about the "good environment" in the economy, though he conceded that "markets are more attuned currently to the downside risks".

Economic evidence remained in short supply. Initial jobless claims were fewer than expected while continuing claims exceeded forecast. The government shutdown means fewer ecostats than usual because many of those who collect and collate the statistics have been sent home. Factory and durable goods orders, new home sales and retail sales are among the numbers that have already failed to appear.


This morning's euro zone data failed to lift the euro, not because they were bad (though they were not great) but because investors find it difficult to get excited about the pan-Euroland current account numbers. For the record, the surplus narrowed in November to a seasonally-adjusted €20.3bn from an upwardly-revised €27.0bn the previous month.

In a continuation of the recent trend the euro was unchanged on the day against the USD. It is down by 1.2% from a week ago. There were no political developments to get in the way.


A game of two halves saw the CAD weaken to a one-week low before recovering later in the day. Its early losses were the result of a slight downturn in oil prices. The subsequent recovery came after rumours that Secretary Mnuchin was considering lifting tariffs on Chinese imports. There was no confirmation of the story from Washington but investors seem to have decided that in Beijing and in the administration there is an appetite to bring the trade was saga to a close.

The Loonie came away with a net daily gain of 0.1%. It is 0.5% higher on the week.


For the third time this week the pound took the lead among the major currencies. There were no positive developments in the Brexit process: indeed the prime minister publicly refused to rule out the possibility of a no-deal withdrawal and insisted that the 29 March departure day remains firm. But, simply, investors do not believe her. They expect Parliament to force a favourable outcome that does the least possible economic damage, and that it will be necessary to delay Brexit Day.

This morning's UK retail sales data did the GBP no favors. Sales declined by 0.3% in December, after a strong showing the previous month, and were up by 3.0% on the year. Both numbers were weaker than forecast. There was no strong reaction from the GBP, which is 0.5% higher on the day and 1.7% above its level a week ago.


Talk of progress in trade discussions with China, whilst unsubstantiated by the White House, was positive for risk-appetite. The safe-haven JPY was in less demand and it spent most of the day on the retreat. Its loss for the day was 0.8% and it is down by 1.0% from its position last Friday morning.

The overnight consumer price index data from Japan did not help its situation. Inflation came in at 0.3% for December, down from 0.8% the previous month. Try as it might, the Bank of Japan is still failing to crank inflation up to its 2% target. The industrial production numbers did not help either. The 1.0% monthly decline was less than the forecast 1.1% fall but it was not exactly an impressive achievement.

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