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GBP: Thin runners

Although markets were thin yesterday with a lot of market participants opting for another day of festive rest, the pound was happy to run higher, predominantly against the USD. Cable hit a 3 month high yesterday and as of this morning sits about 0.5% away from its highest level since June 24th 2016; the day after the Brexit vote.

Yesterday’s UK manufacturing data showed that the sector continues to chug along at a decent rate buoyed by demand from export markets and domestic intermediate and investment sectors. UK goods are, courtesy of the weakened pound, on a Blue Cross sale at the moment but the news that providers to domestic consumers saw a slowing of demand will harden concerns over the outlook of the British shopper. Inflation within the sector remains at a high level too and we will have to keep a close eye on how much of this can be passed through to the end consumer and how much will have to come out of already stretched margins.
News from the construction sector is due this morning with the services sector reporting on Thursday. .

USD: Buttons and minutes

The dollar has recovered some of its 2018 losses overnight although remains weaker on the year still against the pound, euro, yen and most other major currencies.

Donald Trump is still playing a game of ‘my dad is bigger than your dad’ on Twitter vs Kim Jong Un. Following the North Korea leader’s announcement that the nuclear button “is always on my desk”, Trump tweeted “Will someone from his depleted and food starved regime please inform him that I too have a Nuclear Button, but it is a much bigger & more powerful one than his, and my Button works!”
Tonight’s Fed minutes release is from December’s meeting that saw the Federal Open Markets Committee hike interest rates for the 3rd time in 2017. This meeting and decision had two dissenters on that move although growth expectations had been revised higher thanks to the then expected passage of the Republican tax plan.
Although we are in the early days of 2018, there is very little change in the overall market psychology from the 2nd half of 2017. As a result the age old back and forth of inflation, wages, the impact of the US deficit on costs will be in focus for much longer.

EUR: Stronger sellers when it comes to pricing

News from the overall European manufacturing sector was enough to push EURUSD to within touching distance of its highest level for some near 3 years. Within the manufacturing numbers pricing pressures are tipping back into the hands of sellers as opposed to buyers which is a good thing for those looking for higher inflation and therefore higher interest rates from the European Central Bank in time.

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