USD To Finish Best Week Of The Year

GBP: Long roads but conciliatory language

The 4th round of EU negotiations ended yesterday and whilst there has not been movement to warrant Michel Barnier’s interpretation of “sufficient progress”, the tone of the joint press conference between Barnier and Davis was the most conciliatory of the 5 or so joint appearances the two have made.

Barnier told reporters that Theresa May’s speech in Florence “has created a new dynamic in negotiations but that it may take “weeks or months to make sufficient progress” and open to door to trade talks between the UK and EU.

Sterling ran a little bit higher; certainly the Barnier comments on “sufficient progress” is not enough to puncture the current sterling rally but still not strong enough to accelerate GBP gains in our opinion.

The final reading of UK GDP for the second quarter is due at 09.30 but, more importantly, the latest consumer credit numbers that have been so in focus given the reliance on the UK consumer for the growth that we are seeing are also due. In the coming 6 weeks we are expecting the Bank of England to raise interest rates and, as such, the repayments of debts – be they on credit cards, store cards, finance bought cars or mortgages – will become more expensive.

USD: Hurricanes still knocking US data

While US trade, inventories and jobless claims numbers are still being affected by the damage and clean-up operations of both Hurricanes Harvey and Irma, the impact is now showing itself to be less than it had been originally thought.

PCE inflation is due this afternoon and can easily boost the USD should core prices edge closer to the 2.0% target – we expect a run to 1.6% this month, higher than the consensus estimate.

We have seen many Fed speakers this week but the dollar was helped further by Kansas City Fed President George saying that rates hikes are the best way to ensure that the US economy’s recovery is sustained. “Further gradual adjustment in short-term interest rates based on an economy growing above trend…will be important if we want to continue this long expansion,” George said.

Further tax plan chatter has also helped the USD to its best week so far in 2017.

The Day Ahead

GBP/USD will be the crucial cross of the day given the economic data and we must also watch sterling over the weekend as headlines and leaks of the Conservative Party Conference begin to hit the papers. Theresa May’s conference speech last year was enough to send the pound tumbling as her words on “citizens of nowhere” hinted at a diamond hard Brexit.

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