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January 2016

Daily Currency Insight

Published: Friday 29 January 2016

  • UK consumers gaining confidence
  • Euro suffers from poor German retail sales
  • US awaits GDP data – slowdown expected
     
We heard overnight that UK consumer confidence rose last month, much more than expectations. This was the best reading since August 2015 but consumers appear pessimistic over the future of the economy and who can blame them when every newspaper seems determined to undermine the success the UK is experiencing compared to other economies. Whilst economic growth was slower in 2015 that the previous year, Britain is still in stellar form compared to most comparable countries. Sterling held up OK this morning but it is at a low ebb in the overall scheme of things as traders twitch over the possibility of a UK exit from the European Union; especially after BoE Governor Carney's gloomy intervention.
 
Across the Channel, the ECB president has come under a lot of criticism for suggesting there will be further monetary stimulus in March. Nonetheless, the Euro has weakened a little on his comments and that is perhaps all he was trying to achieve. Every central banker wants a weak currency these days; it helps exporters and the risk of inflation is hardly any kind of concern with energy and commodity costs so low. We had poor German Retail Sales data this morning and that fits Mario Draghi's rhetoric just fine. This morning will also bring EU Inflation data which should show a marginal rise in the cost of living for Eurozone residents. When most central bankers are tasked with keeping inflation at 2.0%, the expected 0.4% growth is hardly going to make Mr Draghi change his plans.
 
Today's big news is the US economic growth data. I am still struggling to comprehend the Fed's December rate hike when we are all expecting another slowdown in US economic growth in this set of data for Q4 2015. We are also expecting employment costs (realised at 13.30 GMT as well) to be unchanged in Q4. Later in the day, we will get The Chicago purchasing managers index and the University of Michigan consumer sentiment index; both of which are expected to be a tad down on the previous month. So where is the problem that the Fed perceives? I wouldn't be at all surprised if the US Fed leaves their base rate on hold for an extended period. Whether that would weaken the USD is another question entirely because that depends on China, on oil and on the perception of growth prospects in other economies.
 
This afternoon will also bring Canadian economic growth data. In contrast to the US figures, we are expecting a small upturn in Canada's data. The previous quarter showed no growth at all and we are expecting 0.3% growth this time around. The Canadian economy remains hampered by dire raw material income and weak demand for commodities but the domestic economy may well be stabilising. The Canadian Dollar reflects all of that but may well strengthen in later trade today, so if you are a buyer of CAD, morning trades may make good 'risk averse' sense. Contact your Halo Financial consultant for find out how to do this.
 
I popped into the café in our local station on the way to work the other morning to get a coffee. "Have you had one of our coffees before?" asked the very well-spoken lady behind the counter. "No I haven't", I said. "Well we use a blend of Patagonian, Ecuadorian and Costa Rican beans", she said. "We heat the water to 54 degrees because we find that brings out the best in the bean. Our milk comes from an organic farm in Sussex..... ", and as she said all of these things she was busy weighing coffee grounds and measuring milk and was clearly very happy with her pitch. I thanked her and paid quite a lot of money for my little coffee and took it away. Guess what; it wasn't hot enough and tasted just like almost every other cup of coffee I have ever had from any other coffee shop. I wonder if the hype over coffee has gone a little too far. Calm down; it's just a hot drink....and not even that in this case.
 

Quarantine

 
"I hate to have to tell you this”, said the Doctor in a solemn compassionate voice, “but you have a highly contagious disease. We will have to quarantine you and for the rest of the day you’ll only be fed Pizza and sliced meats.”
 
“That’s terrible”, said the distraught young man. “I understand the quarantine thing because I wouldn't want anyone else to get what I have but that's a weird diet. Why Pizza and sliced meat?"
 
“It’s not exactly a diet”, said the Doctor. “It’s just the only food we've got that will fit under the door!”
 

FX Research by David Johnson
Daily Currency Analysis with Zeta Webber