Clarida’s Confessions:
The Dollar continued its rampant appreciation this morning following the testimony of the Federal Reserve’s Vice Chairman, Richard Clarida. In the first major speech of his appointment, the American economist sided with further US monetary policy tightening. The Vice Chair did not appear concerned by equity market evolutions in the previous weeks despite the aggressive admonitions and deriding comments by President Trump. The Chair and Vice Chair of the Fed appear to be wholly aligned, paving the way towards less accommodative monetary policy that promises to afford the Dollar greater value. The Vice Chair also followed his premier Jay Powell in distancing the Federal Reserve from politics and the White House maintaining that the Fed’s only “job is to sustain what is a very healthy and robust economy”. US Gross Domestic Product data released this afternoon for the third quarter of 2018 surprised to the upside. The recording came in at an annualised 3.5% versus consensus expectations of 3.3%. The reading did, however, still underwhelm the previous figure of 4.2% growth. The data is also used to produce a GDP deflator, a proxy or alternative statistic for the more popular measure of inflation, the Consumer Price Index. This figure surprised to the downside, underwhelming market expectations by a whole 0.4%, causing a sell off in the Dollar throughout the afternoon. Given the principal and superior importance of inflation to monetary instruments and interest rates, this statistic overwhelmed the market effect of the more popular growth measure. Cable recovered from lows of 1.2775 to comfortably trade within the 1.28s at market close. The Euro was also able to recover pivotal ground above 1.14, surpassing important resistance.
Discussion and Analysis by Charles Porter
UK Housing Market Plenty of comment about the UK’s housing market and where it is headed, but maybe it’s time to boil down the essentials for the next year: with rates higher and unemployment likely to rise, conventional wisdom suggests that the housing market will fall. However, there are two key differences to recent previous […]
US Economy The US job figures on Friday most certainly set the cat among the pigeons: with non farm payrolls expected to be up by 187,000 and the market’s expectation that Chairman Powell of the Federal Reserve was talking the talk rather than walking the walk when he had said last Wednesday that rates were […]
Blinkers Today is the day that the ECB and Bank of England meet. Spreads in the spot, forward and options markets are all reflecting a degree of uncertainty and exhibiting volatility already. As we have mentioned, both central banks are widely expected to pursue a 50-basis point hike but the higher conviction call within these […]