All good things come to an end
It is human nature to look under the bed for imagined terrors or subscribe to a view that if something is labelled too good to be true it usually is!
So how do we view a currency that is rising almost in a straight line by default? Obviously with suspicion! The euro doesn’t yet have a fundamental reason to have gained 10% this year. There are positive signs, of course, but is strength built on others weakness sustainable?
The eurozone runs a trade surplus with the UK meaning that the UK buys from more than it sells to the region. Following Brexit, depending on access to the single market, this could be equally painful for both sides, yet only the UK is expected to suffer.
Interest rate differentials between the euro and dollar are widening and could widen further this year but traders are prepared to ignore the cost of shorting the dollar in the expectation of continued currency gains. If we look hard enough we can see a few “chinks in the armour” of the common currency. It is not that long that a total breakdown in the EU in general and eurozone in particular was hanging on the votes of a French electorate viewed as fickle at best.
Carney to maintain stance
Nothing has happened since the last MPC meeting to throw off BoE Governor Mark Carney’s “steady as she goes” demeanour. First, he lives by a mantra that one set of data is insufficient on which to base a monetary policy decision and second, he remains concerned about how Brexit will affect the UK economy.
He will speak later this morning to justify the MPC’s rate decision. In all probability, that decision will be to leave rates unchanged. He is sure to mention inflation concerns, especially as the Quarterly Inflation Report will be issued this morning too. He will lament that inflation is above the government’s target but provide justification (which is wearing a little thin) by blaming the fall in sterling following the Brexit referendum. This fall was, of course exacerbated by the “emergency” rate cut that accompanied the vote.
A new member joins the MPC today. Silvana Tenreyro has voiced her concerns over Brexit in the past so will likely join the dovish contingent on the committee. In September the Government’s top economist, Dave Ramsden will also join to bring the team up to full strength.
Trump admits to being bullied!
President Trump accepts no responsibility for the parlous state of his relationship with Congress. He accepts no responsibility for possibly destroying the Paris Climate Change deal either. So, it is no surprise that he blames Congress, in advance, for any foreign policy issues new sanctions on Russia will bring. Signing the new measures into law yesterday, Trump used Twitter to express is angst with Congress over what he sees as their forcing their will on him. He is very used to this tactic but it is generally his will that is being forced.
Trump’s single policy success, although inadvertent; the lowering of the dollar, will bring imported inflation but for now he needs to be thankful for any “win”.
He announced a new immigration bill yesterday which will, supposedly, cut immigration for those who are a “drag” on the US economy. A new set of measures will be used to decide on prospective immigrant’s suitability.
So much for:
Your huddled masses yearning to breathe free, The wretched refuse of your teeming shore. Send these, the homeless, tempest-tost to me, I lift my lamp beside the golden door!
This is the inscription on the Statue of Liberty.