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August 2017

Ease in US versus North Korea tension benefits USD

Published: Tuesday 15 August 2017

  • Ease in US versus North Korea tension benefits USD
  • Reserve Bank of Australia no longer worried about labour market
  • UK Inflation data awaited
  • US Retail Sales forecast to have improved
By David Johnson
A marginal reduction in tension between North Korea and the US has allowed the USD to strengthen a tad. We have seen a slight fall in the GBP-USD rate and the EUR-USD rate is down as well. The USD may also have benefitted from the expectation that the President will sign off some infrastructure projects today – no Mexican wall has been mentioned though. We will also get US Retail Sales and a Manufacturing Index. We are expecting positive results on both fronts; so further USD strength cannot be ruled out.
The lack of data on Monday has allowed most currencies to drift and today is Assumption Day; a holiday in many European countries, so drifting could be the order of the day, apart from the following: German Gross Domestic Product (GDP) growth is reported as being 2.1% higher on the year in the preliminary report, published this morning. That’s up on the last quarter and well above expectations. The Euro ought to strengthen on that, but it is already strong, so maybe that effect will be muted.
Overnight we heard that the Reserve Bank of Australia (RBA) no longer has concerns over the labour market but warned that the housing market and household debt need “careful monitoring”. This is not a substantial shift in the RBA’s thinking, but the Australian Dollar strengthened a little on the news.
In the Northern hemisphere, we are focused on UK Inflation data. The Bank of England (BoE) seems pretty sanguine over the level of UK inflation. The weak Pound is fuelling inflation but that is not an underlying issue and would therefore not warrant a rate hike. We will also get Producer Price Inflation data which may hint at pipeline inflation; something that may concern the BoE. Sterling is at the weaker end of its ranges right now; particularly against the recovering Euro. Just announced – UK inflation matches June data at annualised 2.6%. Sterling slips a little on the news, as some had forecast a rise to 2.7 or even 2.8%.  Inflation is still outpacing wage growth, so rate hikes are less likely.
These are the major events in the financial markets today, but parochial news reporting is in full evidence this morning. Landslides in Freetown, Sierra Leone, have killed at least 300 people and made thousands homeless in the last 24 hours, but it has received little attention in the British press. Had that happened in the UK, or even in Europe, it would be the major story in all the newswires. This kind of ‘local filtering’ always leaves me baffled.


Wing Commander Ponsonby-Smythe is working with the recruitment team at an air show. He sees two tall, fit looking young men walking past and he approaches them to see if they were made of the right stuff.
“Good morning, young man”, said the Wing Commander, shaking the hand of the taller of the two. “Would you like a career in the Royal Air Force, visiting far off places, seeing the world and learning new skills?”
“Maybe,” said the young man.
“What do you do for a living right now?” asked the Wing Commander.
“Pilot,” says the young man.
“Well, you’d be perfect,” said the Wing Commander. “You could come in as an Officer Cadet and be fast tracked to flying our latest F35 stealth jet fighters.”
“Wow,” says the young guy. “Where do I sign?”
“And what about you,” says the Wing Commander, turning to the other young man. “What do you do for a living?”
“Chop wood.”
“Oh,” says the Wing Commander, disappointedly. “Perhaps we could use a man like you in the engineering section?”
“Why can’t I be on the officer training thing like him and fly them jets?” says the young guy.
“He’s a pilot,” says the WingCo.
“Yeah, but if I don’t chop it, he can’t pile it.”
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