11 Sep 2018

Market Brief: Pound caps off a good week

Lewis Thorn

Dealing team

As if the pound wasn’t having a good enough week as it is was, news emerged on Friday morning that UK GDP growth for Q4 was firmer than expected.

Today's data releases
  Key levels
    Support Resistance
13:30 US core PCE GBP/USD 1.4027 1.4285
13:30 US personal income GBP/EUR 1.1328 1.1459
Market overview

The quarterly pace of growth picked up to +0.5% q/q from the +0.4% seen in Q3. Market and our own expectations had been for growth of +0.4%. These latest figures estimate 2017 growth as a whole at 1.8%. Sector detail showed the pace of services activity strengthening to +0.6% q/q from the +0.4%% seen in Q3, meanwhile industrial production growth was recorded at +0.6% and construction output fell 1.0% on the quarter.In an interview with Piers Morgan at the weekend Donald Trump claimed that the UK will sign a new transatlantic trade deal with the US once the UK is free of the restrictions of the European Union echoing earlier comments from Steve Mnuchin. This continues the trend of improved Brexit news over the last couple of weeks which will have aided the steady climb in sterling that we’ve been witnessing.


The day ahead

The Federal Open Market Committee (FOMC) gathers for its first policy meeting of 2018 this week with its announcement due at 19:00 (UK time) on Wednesday. The meeting will be the last before Dr Yellen’s term as Fed Chair ends. Her successor, Jerome Powell, will be in the Chair by the 20-21 March FOMC meeting. We expect the Committee’s decision to be one of ‘no change’ following the vote to raise rates by 25bps in December 2017; hence we expect the Federal funds target rate range to remain at 1.25%-1.50%. We also expect the Fed to continue with its plan to reduce QE holdings on its balance sheet, with up to $20bn a month ($12bn Treasury securities and $8bn agency debt and agency-backed securities) allowed to roll-off the Fed’s balance sheet (i.e. not be reinvested), at present.


Thought of the day

On Sunday Roger Federer won his 20th Grand slam in the soaring Melbourne heat to cement his place as the greatest player in the men’s game and surely one of the sporting greats of our generation. His victory was all the more impressive given his age of 36. Victory in Melbourne makes it 3 grand slams in the past 12 months but before that, he only won one Grand slam between 2011 & 2016. Federer was the standard bearer of the men’s game during the 2000s but could his haul of recent titles herald the dawn of a new golden age? The Euro appears to be entering into a new golden age of its own with talk the European Central Bank has to end its quantitative easing as soon as possible. As growth continues and price pressures continue to build in the economy, the currency has soared against its peers but most notably the dollar, gaining 8% in just over two months. If you have exposure to the Euro and are concerned on whether its revival is set to stay, give your Investec dealer a call for a view on what might lie ahead.

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