Global Themes

A shock slide in U.S. retail sales knocked the American currency off fresh multimonth highs. U.S. retail sales unexpectedly plunged, sinking by 1.2% in December, which marked the biggest fall in 9 years. That compared to forecasts of a modest increase during the holiday spending season. The data dampened optimism about the U.S. economy which has been a beacon of strength in a world of moderating growth. The dollar overnight had outperformed as surprisingly upbeat trade figures from China increased risk appetite. China’s imports were expected to show a 10% y/y decline in January, but instead fell just 1.5%. Exports increased a whopping 9.1% y/y as opposed to the predicted 3.4% decline. Risk on sentiment washed over markets, benefiting currencies of countries closely linked to China like the Aussie Dollar and riskier assets like stocks and commodities also cheered the news. Mr Trump also helped market sentiment this week by suggesting he might not raise tariffs levied on imports from China if the US and China don’t reach a trade deal by March 1. 

USD

The US Dollar outperformed most of its rivals in the market yesterday due to a number of different catalysts including inflation data and comments by US President Donald Trump. EUR/USD fell to three-month lows, keeping it within striking distance of long term lows. Inflation rose by 1.6% in January versus the 1.5% forecast, which takes it further below the Federal Reserve’s target rate of 2%. However, as it beat expectations, it still keeps the pressure on the Fed to look at possibly raising interest rates this year, which was hinted at by Fed member Patrick Harker yesterday, who predicts one hike in 2019 and one in 2020.

EUR

The persistent pattern of poor economic data continues to plague Europe and weigh on the Euro. Today, Europe’s top economy reported that it narrowly avoided sinking into recession over the latter half of 2018. Germany’s economy logged a zero rate of growth last quarter which followed a contraction during the third quarter. The dismal data should do little to allay recent headwinds on the single currency.

GBP

Hopes of a soft or delayed Brexit continue to rise as amendments to block a no-deal Brexit are gaining more support amongst lawmakers. Sterling remains muted for now, but the risk of volatility is elevated due to ongoing Brexit uncertainty. The Cooper amendment, which looked to extend Article 50 if Prime Minister Theresa May failed to garner enough support for her Brexit deal, was rejected in Parliament by 23 votes last month. The same amendment is likely to be tabled again but it is not expected to be voted on tonight, but rather February 27th. 

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