Furlough extension on the horizon
The UK CBI retail sales index improved marginally to -45 in February but failed to meet forecasts of -38, miles away from the 50 mark which would indicate the midpoint between growth and contraction. The index is used as a measure of how much we have to spend and one indicator used for the GDP estimates. Retailers surveyed were also downbeat looking forward as the forecast figure for March is -62, due to the closure of non-essential retail businesses (lockdown).
Boris Johnson hopes the UK economy will be open for business on June 21st and the market sentiment for Sterling remains strong despite the economic reports being rubbish. Underpinning this is the expectation the UK economy will reopen and recover faster than the EU economy. The Pound rose to 1.4100 against the Dollar (last seen over 3 years ago) and the Euro fell to lows near 1.1625.
Reports emerged that in next week’s budget Chancellor Rishi Sunak would extend the stamp duty holiday to the end of June and extend the furlough programme. The Pound spiked higher overnight as institutional market orders triggered and buying to cover options positions. New highs above 1.4230 to the Dollar were seen before the Pound fell back to just below 1.4200. The Euro slumped to 1.1695 before a minor correction amid strong demand for Sterling buying.
US consumer confidence strengthened to 91.3 for February from a revised 88.9 the previous month and above consensus forecasts of 90.0.
Federal Reserve (Fed) Chair Powell stated that the economic recovery remains uneven and far from complete while the path ahead remains highly uncertain. Powell added that it is likely to take some time for substantial progress on the Fed goals to be achieved and that the FOMC committee will clearly communicate well in advance of any change in the bond-buying pace. He was optimistic that there would be a strong second half recovery in the economy.
He added that the inflation rate remains below the 2% longer-run objective and the pandemic has had a significant imprint on inflation with prices particularly soft in sectors most affected by the pandemic. He also considered that it was unlikely that an increase in spending would lead to high inflation.
The dollar retreated again to 6-week lows following Powell’s comments.
The Euro maintained Strong in early Europe on Tuesday and edged higher against the weak US dollar. The single currency peaked at 1.2180 before being subjected to a correction as market adopted a more cautious stance ahead of the Fed Powell’s testimony, especially with equities moving significantly lower.
The Euro was hampered on the crosses by reports that there will be a further shortfall in Astra Zeneca second-quarter Euro-zone vaccine supplies to the EU and was held just above 1.2150 in early Europe on Wednesday because of this crude shortage.
Data To Watch
09:30 – GBP – Monetary Policy Report Hearings
10:00 – USD – Fed Chair Powell Testifies
10:30 – USD – Crude Oil Inventories