Making America Break Again
UK retail sales declined 1.5% for December against consensus forecasts of a 0.6% decline. Year-on-year retail sales nudged down slightly to 1.4% from 1.5% previously. Despite the monthly data falling well below expectations, the overall impact was limited given distortions over the past two months from seasonal factors. Sterling did lose ground after the release and declined around the US market open with a retreat to below 1.3850 against the Dollar.
The Pound demonstrated resilience later on by resisting a Euro move below 1.1300. There are expectations of a positive outcome in Brexit talks after French President Macron made positive comments on his stance on trade.
Sterling holds firm this morning, moving the Euro towards 1.1340 but with resistance near 1.3900 against the Dollar. The next major data release will be Wednesday’s employment and wage growth data.
The Dollar ended the week with a poor showing, weakening on Friday’s New York open session as confidence was dipped despite widening yield spreads. The University of Michigan consumer confidence index decreased to 94.4 which was below consensus predictions with both the current conditions and expectations components weakening on the month. That said, one-year inflation expectations increased to 2.8% from 2.7%.
Further, pressure on the Dollar increased as the US Senate was not able to come to terms with the spending bill, triggering a shutdown of the government. Weekend negotiations then failed to break the stalemate which will result in further Dollar weakening, and Federal staff will be enjoying unpaid leave until further notice.
The Dollar, on the whole, showed a weak performance against the Pound as Cable showed a steady increase to briefly breach the 1.4000 barrier before ending the week 1.3855.
This week, major market data is reserved until Friday when we see GDP for Q4. That said, as with recent times, the Dollar will be subject to other influences.
The latest European Central Bank (ECB) source reports suggest that the governing council is relatively relaxed about the recent Euro appreciation and the most likely outcome is that policy wording will be changed in March, lifting the currency further.
The German Social Democratic Party (SPD) also voted to begin formal talks with Chancellor Merkel’s CDU party which bolstered confidence, although the vote was narrower than expected. The Dollar recovered ground against the Euro, moving close to 1.2220 from Asian opening highs around 1.2270.
Data To Watch:
24h EUR Eurogroup meeting
13:30 USD Chicago Fed National Activity Index (Dec)