The Pound Rallies Following Mixed Data
The dollar is easing into the weekend but there is weakness in the Euro as well keeping the currency pair rangebound. The Fed’s Clarida had similar cautionary nots in his speech on Thursday echoing the comments of the Fed Chair Powell who spoke earlier in the day. The Fed is trying to reassure the markets that they will not overtighten, and this is allowing equity market to gain traction.
US Yields Remain Steady
After falling sharply and then rebounding in January US rates have not reacted as much as expected to the commentary of the Fed. The 2-year yield remains steady near 2.55% which is the top end of the current range for Fed funds. This shows that the markets has taken back the rate cut it had priced in for 2019 and is now pricing in not change in policy in 2019. The yield curve has continued to flatten which means that rates at the long end of the curve continue to fall.
UK data has kept the pound range bound. On Friday, the UK reported November trade, GDP, and Industrial production. The trade deficit was wider than expected at -GBP2.9 billion, driven by a huge surge in petroleum imports, while GDP grew a slightly higher than expected 0.2% month over month print. Despite the growth this was a 3-month low. The GDP data showed that Britain's services sector grew by 0.3% in the latest quarter, while industrial output dropped by 0.8%, the biggest decline since May 2017. Lastly, Industrial product contracted -0.4 month over month versus expectations of +0.2% dragging the year over year rate down to -1.5% versus expectations that it would increase by 0.7%.
Italy Reported Soft Industrial Production
Italy reported weak November Industrial Product. It contracted -1.6% month over month versus expectations of -0.3%. This reduce the year over year rate on industrial production to -2.6% versus expectation that it would grow 0.4%. France’s Industrial production was similarly dismal as the two vie for worst-looking economy in the eurozone.
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