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In a quiet week for economics, attention has turned to politics.
Two key political events on either side of the Atlantic have raised the temperature for the pound and the US dollar. Last night, it was President Trump’s State of the Union address to Congress that caught the attention of markets. Tomorrow, focus will shift to the slightly less salubrious surrounds of Gorton and Denton, a traditionally Labour enclave projected to issue the prime minister a sharp rebuke.
It would be hard to describe President Trump’s remarks as conciliatory. After his tariff agenda was knocked back by the Supreme Court to end last week, he instead cut a defiant figure, railing against his adversaries and dismissing the Democrats as ‘crazy’ in the longest ever annual speech.
Already a little anxious about a potential conflict with Iran, markets are unlikely to be reassured by the address. The president warned that Iran’s ‘sinister’ nuclear ambitions would soon threaten the United States amid a massive buildup in the American military presence in the region.
Economic news is slightly sparse this week, but there was still time for the Bank of England’s Andrew Bailey to appear in front of a parliamentary committee. Governor Bailey suggested headline inflation would continue to fall sharply, and although markets continue to expect a cut in March, core and services data indicated there were some sticky price pressures to navigate.
This morning, we heard that consumer confidence in Germany came in below expectations heading into March, as measured by the GfK report. Economic expectations and willingness to buy fell significantly from the prior as the desire to save rose to a record high.
The Japanese yen will be in the spotlight for the remainder of this week. That’s because reports are circulating that Sanae Takaichi, fresh from her resounding victory in the snap general election, voiced her opposition to interest rate hikes to Bank of Japan governor Ueda. The yen came under further pressure this morning after the prime minister nominated two dovish candidates for positions within the central bank.
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GBP: Braced for by-election
Sterling came out of yesterday’s trading well, advancing by half a cent against the US dollar and hitting its best level in a week against the euro. Should Thursday’s by-election provide the scale of political shake up expected, that success could prove to be fleeting.
GBP/USD: the past year
EUR: Pausing amid uncertainty
The euro has weakened this week as markets look for clarity around the impact of tariffs. Its losses remain marginal (only around half a cent to the pound and the US dollar since the start of the week), yet they represent the scale of present uncertainty.
GBP/EUR: the past year
USD: Discord threatens dollar
Last night’s state of the union address did little to project unity and harmony among the American people. With polarisation high, there is economic risk for the US dollar amid the rhetoric.
EUR/USD: the past year
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