15 Feb 2019
Sterling suffered from a resurgent dollar but also lost a little ground elsewhere yesterday morning with the Brexit cloud still weighing on sentiment. Bank of England MPC member Vlieghe was also on the wires, backing up previous comments from Governor Carney on the likely path of interest rates in the event of a no-deal Brexit. An easing or extended pause in rates is currently the default scenario. As we approached midday, the pound took a dive when a spokesman for PM May said a no-deal Brexit outcome remains on the table and that the government is still seeking legally binding changes to the withdrawal agreement.
There was no change to Eurozone Q4 growth as the second estimate came in at +0.2% as expected. This was despite German Q4 GDP being revised down from 0.1% to flat but market impact was negligible. Once again though, the focus of attention was elsewhere and any negative thoughts on the slowing Eurozone economy were put to one side and the euro took advantage of post-retail sales dollar weakness.
The dollar had a rollercoaster ride yesterday. After an early morning wobble yesterday, it was soon back in demand with investors still buoyed by renewed confidence that a trade deal with China and a budget resolution to avoid another government shutdown were both on the cards. However, at least some of this confidence was eroded when December’s delayed US retail sales figures were released and showed sales fell at their fastest pace since September 2009. The dollar lost some of its shine in the aftermath as Q4 growth expectations were lowered and Treasury yields tripped lower. It was all change again by mid-afternoon though as reports of a lack of progress during trade talks in Beijing saw risk sentiment hit hard and the dollar rose again on safe-haven flows.
Data and events
UK retail sales are on tap today but as has become the norm with data releases, they will be of secondary importance to any Brexit headlines. For the record, after December’s sharp fall, a rebound is expected for January but both headline and core sales are expected to have risen by just 0.2% at the start of the year. Of this afternoon’s releases from the U.S., the preliminary reading on the University of Michigan consumer sentiment index is the most current and is expected to rebound slightly after the slump in January.
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