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China trade woes boost the yen

USD  

It was the turn of the States to take a day off from economic data. Initial and continuing jobless claims were both fewer than expected. Unit labor costs went up by 2.0% in Q4 and nonfarm productivity improved by 1.9%.  And that was about it; nothing to exert any real influence on the USD's progress.  

Federal Reserve governor Lael Brainard stepped into the information gap, delivering a speech in Princeton. Moving away from the Fed's  party line Ms Brainard preferred "watchful waiting" to "patience". She said she has downgraded her outlook as downside risks grow for the US economy. The message was nevertheless the same: The Fed is not about to resume its tightening of monetary policy and the current round of balance sheet reduction will come to a close by the end of the year.

EUR

The European Central Bank did not deliver exactly what investors had been expecting but it came fairly close. Low interest rates are no longer expected to persist "at least through the summer"; the will now "remain at their present levels at least through the end of 2019". The other concession to slowing growth was "a new series of quarterly targeted longer-term refinancing operations (TLTRO-III)… starting in September 2019 and ending in March 2021". The TLTROs' purpose is to "preserve favourable bank lending conditions and the smooth transmission of monetary policy".

It was not the measures themselves which worried investors, but the downbeat manner of their presentation. If the ECB is concerned, investors thought, then they too should be worried. The EUR moved lower following the announcement and is down by 0.8% on the day.

CAD

The day's sole Canadian ecostat was January's building permits. The 5.5% monthly decline was not significantly worse than the forecast 5.0% fall but the Loonie is not in investors' good books at the moment and they punished the shortfall. It was not a draconian punishment - the CAD is down by just 0.2% on the day - but, after the GDP miss and the dovish Bank of Canada, investors are on the Loonie's case.

BoC deputy governor Lynn Patterson did not improve the CAD's situation when she gave a speech later in the day. In somewhat euphemistic language she said: "Although we figured the economy was in for a detour at the end of last year, that detour may wind up being longer than we had expected." Translation - Canada's economic slump is likely to last longer than first thought.

GBP 

With the "meaningful vote" in parliament due on Tuesday Downing Street was trying desperately to trying to wring concessions from the EU's chief negotiation in Brussels. The sense is that any concessions made ahead of the vote will be insufficient to win majority support for her bill and that it will be roundly defeated.  

Whilst investors still believe that defeat on Tuesday will mean a long extension to the Article 50 departure process, positive for the GBP, they are at the same time aware that it is by no means a foregone conclusion. Three weeks from the scheduled Brexit day, no one - least of all the UK government - has the faintest clue what the situation will be on 30 March.  The GBP slipped back on Thursday, losing 0.6% to the USD.

JPY

The yen was Thursday's winner, making a late run for success during the Far East session this morning for a net 0.3% gain against the USD. The catalyst for its success was a swing towards risk-off as a result of disappointing trade data from China. Exports were down by an annual 20.7% while imports fell 5.2%. The sharp decline is seen as a threat not just to China but to the global economy as a whole.

Japanese data released overnight had relatively little impact on the JPY. Wage growth slowed from 1.5% to 1.2%. Household spending rose by an annual 2.0%. Gross domestic product expanded by a quarterly 0.5% and an annualized 1.9%, both beating forecast.

USD Initial jobless claims

USD Initial jobless claims

EUR Low interest rates are no longer expected

EUR Low interest rates are no longer expected

CAD is down by just 0.2% on the day

CAD is down by just 0.2% on the day

GBP "meaningful vote" in parliament due on Tuesday

GBP "meaningful vote" in parliament due on Tuesday

JPY The yen was Thursday's winner

JPY The yen was Thursday's winner

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