News & analysis


With few Brexit developments on Friday UK data was suddenly capable again of making the needle move after smashing Retail Sales sent GBP to the top of the G10 currency board. Retail Sales grew by 1.0% in January, while December’s figures were adjusted upwards as well, showing the UK consumer pillar of the economy still appears to stand strong despite continued Brexit uncertainty. Low inflation combined with decade-high wage growth naturally does well for real wage growth and thus consumer spending. Nevertheless, other parameters indicate consumers may not continue to prop up the economy with their spending as saving rates are on the rise as well. Over the weekend, little progress has been evident in Brexit negotiations, but both UK and EU negotiators continue to meet this week while Labour battle a possible fracture within their own party for a new centrist party. This week, the main data point is released on Tuesday morning in the form of UK labour market data for December. The Bank of England recently pointed towards a tight labour market to calm market nerves, but any downturn in wage growth could see a sharp sterling sell-off.


On Friday, the euro dipped to a fresh three-month low against the dollar on the back of strong US manufacturing data and European Central Bank dovish tones. Governing Council member Francois Villeroy de Galhau scared markets by stressing the significance of the European slowdown while comments from ECB´s Benoit Coeure increased expectations of further quantitative easing, should the economic weakness in the Eurozone not prove as temporary as initially asserted. This week we will know how the ECB rhetoric shapes up with several officials speaking, closing the week off with ECB´s President Mario Draghi on Friday. There may be two elements to pay extra attention to this week. First, German ZEW and IFO Business surveys are released on Tuesday and Friday respectively, with Purchasing Manager Indices for Germany and the Eurozone scheduled for Thursday. These surveys will give us more insight in the direction the Eurozone growth may take in the first half of 2019. The second main topic for this week will be how the positive tones in US-China trade talks can potentially build the case for ECB monetary policy turnarounds. In the meantime, markets will keep an eye on domestic politics, after a week where Spanish snap elections were announced for the end of April.


Optimism on trade talks reversed safe haven flows out of the dollar on Friday after President Trump classified the US-China trade talks of last week as “very productive”, which had USD lose ground against most G10 currencies. Trump’s remarks make the world hopeful that a deal will be reached between the two trade molochs, or at least that the 1st of March deadline for higher tariffs on Chinese goods will be extended. Such a deal at this moment would mostly be positive for EUR and risk-sensitive currencies like AUD, CAD and NZD as they suffered most from the worsening economic outlook caused by the trade uncertainties. Meanwhile, Trump continues to be magnetic for limelights as he announced he will call a national state of emergency in order to obtain the funds he needs to build his Mexican border wall. Today US markets remain closed for Presidents’ day as the country honours its present and past presidents, which may feel ironic given how disputed its current president is by some.


The loonie recovered some strength at the end of last week on increased risk appetite, which also made it gain against a broadly weaker US dollar. Global trade optimism has also boosted oil prices, which are placed now 30% above the low levels they showed last December. Additionally, a surprising print in the monthly growth of existing home sales also supported the currency, as the sector recovered from a 2.5% contraction in December to a 3.6% expansion in January. This was well beyond market expectations of a 0.6% shortfall this month. Investors will hold their breath this week, however, as potentially dovish tones are expected in Bank of Canada Governor Stephen Poloz´s speech on Thursday.