Good morning

EUR: Talking a good talk

The European Central Bank meeting from December was a place setter for 2018 and the minutes of that meeting, released yesterday, allowed the euro higher as has been its wont so far this year.

The main quote was that “the view was widely shared among members that the Governing Council’s communication would need to evolve gradually, without a change in sequencing, if the economy continued to expand and inflation converged further towards the Governing Council’s aim. The language pertaining to various dimensions of the monetary-policy stance and forward guidance could be revisited early” in 2018.  This is central bank speak for an element of confidence and a wider expectation of the language from policymakers to echo this.

Much like we have seen in the US and UK following the cessation of their QE programs, one has to expect that ‘forward guidance’ will come back to the policy arena and communications on rates that are expected to be more transparent actually becomes more opaque.

EUR rallied throughout the session, pushing above the 1.20 mark against the USD and happily into the 1.12s in GBPEUR. This trend is unlikely to change until both the US and UK start kicking out data that suggest inflation is building and their respective central banks are behind the market’s expectations for interest rate changes.

USD: Dollar not helped by PPI

Yesterday’s producer prices inflation number was not strong enough to push new money into the USD. Core prices, those that do not include food and fuel, slipped by 0.1%. The consensus expectation for today’s US CPI number (i.e. consumer prices) is 1.7% and a miss there will only propel the USD weaker into the weekend break and the long weekend in the States.

US retail sales are also due and we forecast a strong gain for the nation’s retailers. Both CPI and the retail report are due at 13.30 GMT.

The day ahead

Other than that, markets are pretty quiet as they work their way into 2018. Political risk is still in the background with Merkel still trying to form a government in Germany, UK PM May responding to the pressure on the National Health Service and President Trump never far from the headlines.

Have a great day and a better weekend.