Daily Market Commentary

Friday, 16 March 2018 - Market Commentary

Nick Parsons



Data Releases:

The British Pound rose against all the major currencies apart from the US Dollar on Thursday, with gains extending to more than a full cent against both the Canadian and Australian Dollars. GBP/USD was volatile within a half cent range from 1.3930 to 1.3980 and ended the New York session pretty much near the middle of the day’s trading band. Overnight in Asia it had an early dip to 1.3920 but has subsequently recovered to the 1.3940 area in a session which has seen very little movement across most of the major currency pairs.

With no fresh economic news and the UK media still totally focused on a diplomatic row between the UK and Russia, we can turn instead to a study by the Economist Intelligence Unit and reported in The Guardian which found that British cities have dropped to their cheapest levels internationally since at least the 1990s. It said the sharp fall in the pound after the EU referendum – still more than 6% lower than it was on the eve of the vote – had sent London and Manchester sharply down the rankings. Analysing a basket of more than 150 goods in 133 cities around the world, the report found London was now almost a third cheaper than Paris to visit, and almost a 10th cheaper than Dublin. The UK capital fell six places to 30th in the rankings for the most expensive city in Europe, while Manchester dropped five places to 56. Singapore retained the title as the world’s most expensive city for a fifth year running, while Paris and Zurich topped the list in Europe.

There is now less than a week until the EU Summit at which decisions will be taken on the next steps in the Brexit negotiations. With politicians focused almost exclusively on Russia over the past few days, this Summit has rather dropped off the radar screens in the UK. As the date approaches, though, do be prepared for comments from either side which have the potential to move the pound suddenly and without any warning. Having orders already in place is one of the best ways to profit from or to mitigate risk as volatility picks up. It’s been a rare event recently but the US Dollar finished the day on Thursday at the top of our one-day currency performance table. Its index against a basket of major currencies rose more than four-tenths of a point from its early low just below 89.20 to a best level at the end of the London afternoon around 89.62; the highest in just over 48 hours. Overnight in Asia it has held these gains with both GBP/USD and EUR/USD little changed from their New York closing rates.

As Bloomberg reports the Larry Kodlow story, “Within minutes of being named as top White House economic adviser, Kudlow was on the airwaves to push a tough stance toward China and promise a new phase of tax cuts - hitting two of Trump’s favorite talking points and making clear why he was chosen for the job. The economist and CNBC contributor also demonstrated a Trump-like willingness to ignore taboos. In a rare departure for someone about to take a senior government job, he questioned Federal Reserve monetary policy and even offered a trading recommendation ‘I would buy King Dollar and I would sell gold.’” Yesterday morning the former Bear Stearns chief economist was back on TV. He told CNBC that, “I must say as somebody who doesn’t like tariffs, I think China has earned a tough response not only from the United States... A thought that I have is the United States could lead a coalition of large trading partners and allies against China, or to let China know that they’re breaking the rules left and right. That’s the way I’d like to see. You call it a sort of a trade coalition of the willing.”

It may not be a hard and fast rule, but it’s a long-held tradition that only the Fed speaks about interest rates and only the US Treasury makes official comments on the Dollar. It’s something of a game with reporters to try to catch out officials with a question inviting them to stray outside their usual remit. Larry Kudlow does not observe such traditions. Asked about interest rates, he said, “the profit picture is good. It’s looking real good, and growth is not inflationary just let it rip for heaven''s sakes. The market is going to take care of itself. The story takes care of itself let it rip. The Fed will do what it has to do, but I hope they don’t overdo it.” With a President on Twitter and his Chief Economic Advisor on financial TV, it’s going to be very hard to keep up with all the breaking news and fresh volatility which markets now face. The US Dollar index opens in Europe this morning around 89.25.

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