Weak dollar policy

Grossly undervalued

The euro was Tuesday's leader, not only because the €Z economic data looked reasonably good but also because it had unexpected help from across the Atlantic. 

Mr Trump himself kicked things off when he lectured pharmaceutical company chiefs on local production and lower prices. He told them other countries "live on devaluation". "You look at what China's doing, you look at what Japan has done over the years… they play the money market, they play the devaluation market and we sit there like a bunch of dummies." Meanwhile Mr Trump's National Trade Council chief, Peter Navarro, was telling the Financial Times that the euro is "an implicit Deutsche Mark" that is "grossly undervalued".

Japan's cabinet secretary Yoshihide Suga disagreed, saying Trump's assessment "completely misses the mark" while the line from Berlin was that either "he hasn't understood the euro or this is a serious conspiracy accusation". Nevertheless, investors felt obliged to do something so they bought the euro, taking it one US cent higher on the day.

Collateral benefit

As the euro rose against the US dollar it dragged the other European currencies in its wake. The Scandinavian crowns followed most closely and the pound and the franc were not far behind, unchanged on the day against one another. 

Sterling strengthened by an average of 0.2%, losing half a euro cent and adding two thirds of a US cent. The Bank of England's money supply data did it no favours: consumer credit fell sharply in December and mortgage approvals fell short of forecast. It was only when the US administration's comments came out that sterling recovery gained real traction. 

The Euroland data were decently positive. Gross domestic product expanded by a provisional 0.5% in the fourth quarter of 2016, matching growth in the States and only narrowly being beaten by Britain. Unemployment ticked down to 9.6% and inflation accelerated from 1.1% to 1.8%. So the euro's success was not entirely down to Mr Navarro.

PMIs and FOMC

The first of the month brings the usual round of purchasing managers' index readings, the majority of them from the manufacturing sector. On this occasion it also brings the monetary policy decision of the Federal Open Market Committee.

Britain's manufacturing PMI is pencilled in at 55.9, a couple of ticks lower on the month but still among the leaders.  The forecasts for Germany and pan-Euroland are 56.5 and 55.1 while the two US measures are supposed to come in at 55 and 55.1.

No change to US interest rates is expected from the FOMC today. It is a pity that the minutes of the meeting will not emerge for another three weeks: It would be instructive to know how - if at all - members of the committee are reacting to the efforts of the White House to depress the value of their currency.