Euro zone growth forecasts downgraded


It was the USD's turn yesterday to go with the flow, almost untouched by economic data or central bank inputs. On average it was 0.3% firmer against the other ten most actively-traded currencies.  

America's balance of trade constituted the only available data, and it was unremarkable. The deficit in goods narrowed to $70.5 billion in November, with the overall deficit down to $49.3 billion. Federal Reserve chairman Jerome Powell was on the record at a meeting with teachers in Washington. He said the country's biggest challenges are sluggish productivity and a widening wealth gap and he offered no opinion about the monetary policy outlook.


Another day of decline took the EUR 0.4% lower against the USD. This morning brought another dire set of data from Germany, as a 0.4% monthly decline for industrial production left in 3.9% lower for 2018 as a whole. The industrial output figures for Spain were even more unlovely, showing a 6.2% decline last year. The cherry on the cake was Italian retail sales, which fell 0.7% in December.

Updated estimates from the European Commission put all this into the context of the euro zone as a whole. The quarterly revision to its forecasts put growth this year at 1.3% and 1.6% in 2020: previously the EC had been looking at 1.9% and 1.7%. Although the numbers did not come as a surprise to investors - economists elsewhere have suggested similar outcomes - they were unhelpful to the EUR and will probably weigh on it today.


A 2% rise in oil prices worked in favour of the CAD on Wednesday but, for once, the Loonie had bigger fish to fry. So-so economic data and unhelpful comments from the central bank sent the CAD 0.3% lower against the USD.

A 6.0% monthly increase in building permit issuance looked decent enough but the more important Ivey purchasing managers' index was five points lower on the month at 54.7. More important yet was an observation by Bank of Canada deputy governor Timothy Lane. In a speech about the management of foreign reserves he indicated that a weaker CAD is positive for the economy. Whilst he did not call for more of that weakness investors could not avoid the idea that the BoC might welcome it.


As prime minister Theresa May desperately searched for support in Europe for a deal - any deal - that could win parliamentary approval in London, EU leaders repeated their assertion that the deal already on the table is the only one available. They argue that it is structured in the way that it is because of PM May's "red lines", and only if those lines are erased or moved will it be possible to come up with a different deal. EC president Donald Tusk expressed his exasperation when he told reporters that those who "promoted Brexit without any idea how to deliver it "deserve a special place in hell".

Halifax, a mortgage lender, said house prices fell 2.9% in January and are 0.8% higher on the year. There were no other UK data. The GBP moved lower in early London trade, apparently on concern that the Bank of England governor might say something dovish at his press conference this morning. It is down by 0.4% against the USD.


It was another day off the radar for the yen. The net result was a loss of 0.3% to the USD but it was more of a random walk than purposeful mission.

Data released overnight showed Japan's foreign reserves almost unchanged at $1.279 trillion. The Cabinet Office's coincident and leading indicators were both lower, at 102.3 and 97.9 respectively.  

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