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Sterling wanes after May’s Commons defeat

Mon 18 February 2019

The week ahead:

  • UK unemployment figures (Tuesday, 9.30am)
  • US service sector activity (Thursday, 2.45pm)
  • Euro zone consumer inflation data (Friday, 10.00am)

Highlights from last week:

  • Sterling drifts lower after Commons vote fails to pass
  • Dollar spurred after US government shutdown averted
  • Euro hindered as German economy shows cracks

The Week Ahead: Another week of Brexit talks

Brexit Secretary Steve Barclay is due to return to Brussels this week to continue Brexit negotiations with his EU counterpart Michel Barnier. The aim being to secure changes to Theresa May’s current deal in order for a decisive vote promised to MPs prior to the leaving date of 29th March. In a relatively light week for data releases the UK’s economic calendar includes unemployment data (Tuesday, 9.30am) and public sector borrowing figures (Thursday, 9.30am).

Ongoing trade talks between the US and China will likely remain a key hurdle for the US dollar this week. Latest discussions have yielded little by way of an agreement but any headway between the two nations will likely support the US dollar. Economic releases for the US will include durable goods orders data (Thursday, 1.30pm), service sector activity figures (Thursday, 2.45pm) and existing home sales (Thursday, 3.00pm).

Noteworthy economic announcements for the euro zone this week will include consumer confidence data (Wednesday, 3.00pm). The health of the euro zone’s service sector, a large contributor to economic growth will be highlighted in Thursday’s service sector activity data release (9.00am). The euro zone’s latest consumer inflation data will conclude the euro’s week on Friday at 10.00am.

View UK, US and euro zone announcements with our economic calendar

Other key data releases:

Swedish consumer inflation data (Tuesday, 8.30am)

Australian unemployment data (Thursday, 12.30am)

Japanese consumer inflation data (Thursday, 11.30pm)

Canadian retail sales data (Friday, 1.30pm)

Last week recap – Sterling fades as Brexit takes hold of UK economy

Another Commons vote on Brexit and another blow for Theresa May. Members of Parliament voted against the Prime Minister’s approach to Brexit negotiation, piling further pressure on the pound. The results have no enforceable legal obligations, prompting May to suggest she would not change her methods in dealing with the EU.

The effects of Brexit uncertainty were evident in the UK’s latest bout of economic growth figures, with output slowing to 0.2% during the last three months of 2018. Annual economic growth came in at 1.4%, the weakest headline rate since 2012. Economic troubles across the European Union, the UK’s largest trading partner, also weighed on UK growth, as did weaker business investment.

UK inflation dropped to its lowest level since January 2017 with falling energy and fuel costs providing a welcome boost to the UK consumer, whilst retail sales advanced by 1.0% in January, marked the largest annual gain since 2016.

A telephone conversion of £10,000 into euros through our Currency Service at midday on Friday would have purchased €11,227.

US dollar firmer as Congress passes spending bill

The US dollar enjoyed gains versus both the euro and pound last week after US Congress passed a funding bill that would avoid another government shutdown and keep federal employees in work through to the end of September. The bill fails to incorporate funds for Trump’s Mexican wall, a measure that is speculated to be remedied by the President declaring a national emergency. The move would enable Trump to bypass Congress, giving him access to ample funding to build his wall.

Outside of Congress negotiations US economic data failed to offer much to support the dollar. The country’s rate of consumer inflation remained unchanged during January, whilst retail sales registered their largest drop in over nine years in December falling by 1.2%.

A telephone conversion of £10,000 via our Currency Service would have purchased US$12,657 at midday on Friday.

Euro struggles as Germany shakes

The euro remained largely subdued against the pound last week as figures revealed that Germany narrowly avoided recession in the final quarter of last year. The euro zone’s economic powerhouse registered zero growth during the tail end of last year with weaker trade and lower consumer spending being the main reasons for lacklustre growth.

A positive reading of French unemployment helped improve sentiment towards the common currency on Thursday however. The country’s rate of unemployment surprisingly fell to its lowest levels since 2009 at the end of last year, providing a welcome relief to an under pressure President Macron.

New Zealand dollar bolstered by RBNZ’s outlook

The New Zealand dollar made a strong advance against the pound last week after the Reserve Bank of New Zealand’s policy outlook wasn’t as negative as originally thought. Despite Governor Orr reducing future rate forecasts, the dollar rallied as markets expected a dimmer view.

The Japanese yen pared weekly losses versus sterling after the country’s economy bounced back in the final quarter of last year. Both business and consumer spending recovered in the three months to December, helping Japan’s economy post annualised growth of 1.4%.

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