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January 2017

Euro strengthens as USD weakens

Published: Thursday 05 January 2017

  • Euro strengthens as USD weakens
  • Federal Reserve minutes offer no new news
  • Sterling in tight range as positive data assessed

Whilst the UK press was fixated on the departure of one Knight and the arrival of another in the EU consulate, the markets were more interested in the fact that the weaker Pound boosted the FTSE 100 to its highest ever level and the US central bank was releasing meeting minutes.
The US Federal Reserve published the minutes from their last meeting yesterday evening. There were no unexpected surprises or nuggets of insight and the markets appear to have taken that as a negative. I say that because the US Dollar weakened immediately and that has strengthened the likes of the Australasian Dollars and the Euro. Sterling has slipped to below €1.17 and has lost ground against all but the USD. Today’s service sector Purchasing Managers’ Index (PMI) is forecast to be a tad down on the previous results, so Sterling has scope to strengthen again if the forecasters have got their calculators in a twist.
Of course, whatever the Fed says comes with a big heap of caveats related to what Donald Trump might do when he is sworn in on 20th January. Let’s hope he can get a few people to perform at the inauguration. Rebecca Ferguson said she would take part if she could sing the anti-racist song, ‘Strange Fruit’. We do not yet know if that will be allowed. Whilst it would be good to see that as a spectacle, I don’t think anyone can sing it as well as Diana Ross did when she played Billie Holiday in ‘Lady Sings the Blues’.
But I digress. The Euro also gained strength yesterday from a rise in consumer inflation to 1.1% on the year; up from 0.6% previously. We also heard that Eurozone Purchasing Managers are increasingly confident about the future. That bundled the Euro along as well and prompted German economists to call for interest rate hikes from the European Central Bank (ECB) to counter these inflationary factors.
This afternoon brings us Canadian industrial production data. Forecasts are mixed, but the Canadian Dollar is more heavily influenced by the US Dollar and the value of rising commodity prices, which generally benefit Canadian exporters. We will get the Canadian international trade data tomorrow to assess the impact of those things.
Other than these factors, it is a pretty quiet day for data ahead of tomorrow’s US employment report.
Have a spiffing Thursday.
New Diplomat
Having only been the new Ambassador to America for two weeks, Sir Miles is surprised when his mobile phone rings. He didn’t think anyone had his number yet.
“Good morning Mr Ambassador. This is Mike James from the New York Times. I'd like to know what you want for Christmas.”
“It’s kind of you to think of me Mike, but I must say we cannot accept any gifts, I am sorry to say. Thank you for your call, though.”
“I understand,” said Mike, “but that’s not wha…”
Sir Miles cut him off with a curt “Goodbye Mike.”
The next morning Mike is on the phone again. “Hello Mr Ambassador. This is Mike from the New York Times again. I'm wondering if you're really serious about what you said yesterday?”
“Hello again Mike... Er, yes, unfortunately I meant it. You see, we’re not allowed to accept personal gifts. They could be seen as bribes, and I don't want to cause any scandal. I'm very sorry, but I hope you understand. Bye.”
The next morning Mike is back on the phone. “Hello Sir Miles. This is Mike again. Can I just explain my question. What I wanted….”
“Mike this is becoming a bit tiresome,'” said Sir Miles. “I am not sure what you are trying to achieve here but I do not want anything for Christmas.”
“But,” started Mike.
“But nothing, “ said Sir Miles. "If you have to get me something, I’ll have a banana. OKAY. Now let that be an end of it. Goodbye!”
“A banana? Is that really your answer?, said Mike, as Sir Miles hangs up.
Sir Miles is greeted the next morning by his personal secretary with a copy of the New York Times. It is open on page four. The headline reads,
‘What the foreign ambassadors in Washington want for Christmas’ 
Canada. Improved economic welfare.
Germany. Improved relations between Europe and the US.
France. Free trade between Europe and the USA.
Switzerland. Better European cooperation, and better US relations, plus peace in the Middle East.
Israel. An end to Palestinian attacks.
Sweden. End the starvation in the third world.
South Africa. Better environmental care.
Great Britain. A banana.

Daily Currency Insight by David Johnson

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