The Dollar has weakened across the board in the past 24 hours with Sterling the outperformer amongst developed currencies and the GBP/USD cross up to a month-high of 1.308. There has been no obvious, single catalyst with key outstanding issues – including ongoing trade negotiations between the US and China and Brexit – still far from resolved. In the latest Brexit twist three members of the ruling Conservative Party and eight members of the main opposition Labour Party have resigned this week to set up an independent party and there is speculation that more members of parliament will follow suit. In the meantime Prime Minister Theresa May continues to negotiate with the EU over the issue of the backstop with so far little or no notable progress.
Macro data continue to point to slowing global economic growth but UK data have in comparison been somewhat less weak. It is telling that markets are currently pricing in 12bp of Bank of England rate hikes over the next 12 months, more than for any other G10 central bank, including the Federal Reserve, ECB, Reserve Bank of Australia and Reserve Bank of New Zealand.
While retail sales contracted 1.2% mom in December in the US (and 0.3% in the last four months of 2018), they rebounded 1.0% in the UK. Measures of CPI-inflation remained muted in both economies in January but wage growth continues to slowly inch higher in the UK. Germany, the Eurozone’s largest economy, only barely avoided a recession in the second half of 2018, with GDP flat in Q4 following a 0.2% qoq contraction in Q3. The lack of growth in the Eurozone is increasingly colouring the ECB’s discourse although it has so far stopped short of formerly pushing back its timeline for planned policy rate hikes.
