When writing the commentary these days it is difficult to know where to start. This mornings is another classic example, as I type I’m torn between where to start, on the political or economic front. I decided to borrow today’s headline from the late Stephen Hawking’s, as I think it epitomises what markets are about today. With so much happening in global markets, currency swings in even the most liquid crosses can be significant. We can see this in both the pound and dollar as political risk continues to outweigh the fundamental economic data. Trump looks to have installed a revolving door in the White House, with Rex Tillerson, the US Secretary of State, the latest person axed. The dollar reaction to the news was swift, falling against it major pairs with GBPUSD breaking above last week’s high of 1.3920 and now eyeing the 1.40 level. Trump has now lost two high profile employees in the past week, and he now has a tough task on his hands of trying to regain markets confidence in the greenback with his new appointments.
On the data front, the latest CPI figure from the US showed a rather tepid report, easing investors’ concerns around the prospect of 4 rate hikes this year, with the headline figure coming in as expected at 0.2 percent. The release comes a month after the consumer price index posted its biggest gain in four years, causing markets to question whether the Fed needed to raise rates quicker than anticipated. This resulting in major indexes selling off, plummeting more than 10 percent. Markets however traded a little more cautiously to the release this time round. It hard though to gauge whether this was to do with the actual figure, Tillerson’s departure or the rumors around Trump’s $60bln tariff on Chinese imports. Such a move could ignite a currency war between the world’s two largest economies which would have repercussions for the rest of the world!
Back to today where the US retail sales figure will be of interest with markets anticipating a bounce back from January’s poor reading. Whether this will be enough to lift the dollar will depend on the noise coming from the White House.
Yesterday in the UK where in his Spring Statement, Philip Hammond, revise up GDP growth from 1.4 percent to 1.5 percent. The Chancellor also revealed that public sector net borrowing in 2017-18 would be £45.2bn, down from the £49.9bn. This saw GBP touch its highest level in a fortnight, with Trump also providing a helping hand. The pound has a relatively quiet week on the data front so will again be taking its lead on the political front.
The euro similarly has little data of note for the remainder of the week. Mario Draghi was speaking earlier this morning where he reiterated again that rates would remain low for a long time, while the Central Bank will remain patient, persistent and prudent. The euro traded lower after the speech, something markets had become accustom to with the Draghi of old.