GBP/USD Running At 6 Week Highs
No tweets, no heat
Things have been rather calm overnight with little fresh market moving news from the new President. Yesterday’s focus on security and the creation of a wall made sure that the Mexican peso spent a lot of its time downrange while country’s currencies that are set to show some appeasement to the Trump administration ran higher.
GDP could easily keep GBP bolstered
Analysing GBP in the past few weeks has been a very noisy affair, especially against the US dollar and picking apart the differences between what is Supreme Court exuberance, a post inauguration sell off in the greenback and a squeeze on traders who are short the pound. We believe that the upward pressure on sterling at the moment is coming from traders who were part of the consensus to push the pound lower exiting those trades as the market squeezes their conviction.
It will have also been helped by the news that the May government will now publish a white paper on its plans for leaving the EU following cross-party pressure in Parliament. Whether it simply says “Brexit means Brexit and we’re going to make a success of it” remains to be seen but political watchers are looking for the bill on the triggering of Article 50 to be introduced sometime today.
Finally, while there are a lot of politics in currency at the moment and vice versa, we have to remember that data can still influence these markets as much as a speech or address from the halls of power can be. This week’s highlight will be Thursday’s first look at Q4 GDP which we think has definite risks to the upside.
Last week’s retail sales numbers showed a definitive collapse in retail spending in December but the quarter was still positive thanks to a whopping amount of spending in October. The preliminary reading of GDP tends to focus on the first 6 weeks of the quarter more than the second and therefore while we expect GDP to average 0.5% on the quarter as a whole, we think that may only be seen following a number as high as 0.7% in the preliminary reading.
Yuan stronger into the Lunar New Year
Recent strength in the CNH (Chinese Yuan held offshore) has been maintained in the past few sessions with USD/CNH down 2.1% on the month with Chinese authorities continuing to pressure speculators eager to see the value of the yuan fall. Interest rates on holding CNH offshore almost doubling allowed for some of the air to come out of the market but we still remain comfortable in our beliefs that USD/CNH will come higher over the course of the year and eventually breach the 7.00 level.
News on China will be interesting in the next week as from Friday the majority of the country is shuttered for the Lunar New Year; is this when Trump starts to fire his first salvos against the US’s largest trade partner?
The Day Ahead
Aside from the UK GDP number, today’s data calendar is rather quiet. US inventories may be able to give us a long lens look at the outlook for US retail sales and consumption moving forward whilst we expect that US jobless claims – the number of people claiming unemployment insurance in the US – will remain very low.