USD mostly ahead


It started well Friday, picking up 0.5% during the New York morning, and finished less impressively with gradual erosion Friday afternoon and in the Far East this morning. Nevertheless, the USD is up there with the leaders. Its gains came in the wake of data showing US industrial production increased by 0.3% in December with capacity utilization ticking up to 78.7%. Both numbers exceeded forecast. But then The University of Michigan revealed an almost eight-point fall in its consumer sentiments index, to a provisional 90.7. Shortly after that announcement the USD turned south.

That said, the USD's gains and losses appeared to owe more to trade sentiment than to the macroeconomic data. The talk on Friday was bullish, especially from the White House. The president said "things are going very well with China", though he denied that any tariffs on Chinese goods are about to be lifted. However, the talk since then suggests a lack of progress on intellectual property theft, a key plank in the negotiations for the administration.


The euro continued to maintain a low profile on Friday and this morning. The data for German producer prices were the only ecostats of any real significance: they fell 0.4% in December and were up by 2.7% on the year. Only the most desperate of investors would have tried to make anything out of the €1.417bn current account deficit in Greece or the downward tick in Slovakian unemployment to 5.0%. 

Over the weekend Bloomberg published the results of a survey of economists' outlooks for the EUR. Four fifths of them expect the currency to survive in the long run, "in part because Britain's messy divorce from the European Union is acting as a deterrent against departure. The economic consequences for a euro member leaving would be even worse than those observed in the UK". It survived Friday almost unscathed, losing 0.2% to the USD.


The Loonie was alongside the EUR. It, too, is down by 0.2% on the day even though the two currencies followed quite different trajectories. Multiple changes of direction showed that investors had no clear destination in mind for the CAD, at least until London got involved this morning.

Friday's Canadian data were positive for the CAD. The headline rate of inflation perked up from 1.7% to 2.0% and the Bank of Canada's core measure was also higher, accelerating from 1.5% to 1.7%. Numbers like that will not give the BoC any cause for concern but at least they will not encourage the central bank to consider loosening monetary policy.


Sterling was Friday's outcast and it is 0.8% lower on the day. The only UK ecostat to get in the GBP's way was the house price index from Rightmove, a website portal for realtors. The index, which tracks asking prices, rose 0.4% in January and is 0.4% above its level a year ago.  

After a week of almost unbounded optimism, investors took a Brexit reality check on Friday. Yes, they still think it unlikely that Britain will leave the EU on WTO terms, the so-called "cliff-edge" "hard" Brexit for which nobody is really prepared. They fully expect a deal to be done, and the longer the haggling goes on in Westminster, the more they expect that deal to bind the UK to the common customs area, in order to facilitate trade. A postponement to the departure date, beyond 29 March, is also possible.


The yen put together another spectacularly dull day. It is unchanged against the USD. No Japanese economic statistics emerged overnight and there were no commentaries from central bankers or politicians.

The JPY did receive some help from weal Chinese growth figures this morning - growth in 2018 was the slowest since 1990, prompting a ripple of risk-off safe-haven demand. But there was no mileage in it.

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