We’re not Putin up with it!
German officials were positive about progress made on the Brexit withdrawal agreement, increasing optimism surrounding next week’s EU Summit meeting. Sterling benefitted until the New York open with the Euro at three-week lows and testing just beyond 1.1300 despite a slight shift in net bond yield differentials against the Pound. Sentiment weakened later in the afternoon after the Russian government announced retaliation to the UK’s expulsion of Russian diplomats and financial sanctions on Russian assets.
A drop in US equity markets and fragile risk tone also limited Pound support, although selling pressure was mild. Overall, the Euro consolidated around 1.1300 with Sterling looking to make a fresh test on the 1.4000 mark against the Dollar as markets started to focus on significant UK economic and political events next week.
Following on from recent events in the US, such as the firing of Rex Tillerson and reports of a potential for $60bn worth of tariffs on Chinese imports, uncertainty surrounds the Dollar. This was reflected in the markets yesterday with a choppy trading session and it was unclear whether the Dollar was in demand or not.
On the economic front, US retail sales failed to meet expectations with a decline of 0.1% for February, but there was a positive amendment to January’s data. Further, underlying sales growth also disappointed with a 0.2% increase although with a 4.4% increase on an annual basis. Finally, producer prices (PPI) increased 0.2% on the month whilst the annual gain was 2.5%.
The weaker-than-expected retail sales data and lack of acceleration within the PPI data moved the Dollar weaker before hitting resistant levels of 1.4000 for Cable and 1.2400 against the Euro.
The Euro is relatively steady, despite comments from Mario Draghi yesterday that continued to suggest the European Central Bank (ECB) is a long way from considering raising interest rates. President Draghi also said that external factors had driven the Euro’s appreciation more than domestic fundamental factors that might weigh on growth.
Draghi confirmed that he is more confident now than he has been in the past months that inflation will increase, however, risks and uncertainties still persist as the ECB need to see further evidence that inflation dynamics are moving in the right direction. On the asset purchase program he said that the stimulus is still necessary as of now and stressed that the key question is to know how quickly stronger demand will translate into rising prices. A dovish comment that was picked up by the market was: ‘Euro strength could weigh on inflation down the line’.
ECB’s Benoît Cœuré also made a speech called ‘Making Our Monetary Union Stronger and More Resilient’ where he said that monetary policy can do little to lift the long-term growth rate of the Eurozone. Adding to that he explained ‘any well-functioning monetary union depends on flexible markets, adequate national fiscal buffers and a common fiscal instrument to cope with large shocks.’ On the impact of the asset purchase program, he said that the ECB stimulus will add around one-third of a percentage point to 2018 GDP growth.
There isn’t much worth mentioning data-wise in the Euro area today, so other currencies will be looked at to force the price action.
Data to Watch:
24h EUR EcoFin Meeting
07:45 EUR Consumer Price Index (EU norm) (YoY) (Feb)
08:30 CHF SNB Interest Rate Decision
12:30 USD Continuing Jobless Claims (Mar 2)
12:30 USD Initial Jobless Claims (Mar 9)
12:30 USD Philadelphia Fed Manufacturing Survey (Mar)
15:45 EUR ECB’s Lautenschläger Speech