Good morning,

USD: Further Fed concessions

More and more speakers from the Federal Reserve are coming out to the market and preaching that the central bank understands the need for patience on additional interest rate rises.

Fed Chair Jerome Powell told an audience at the Economic Club of Washington, D.C. that “We’re in a place where we can be patient and flexible and wait and see what does evolve, and I think for the meantime we’re waiting and watching.”

Another Fed member and the newest to join the board, Richard Clarida, made similar noises in a speech while adding that should the headwinds the US economy is facing then additional policy help – i.e. rate cuts – may be needed.

CNH: A stronger yuan is a good thing

News that the Chinese Vice Premier Liu He is expected to travel to Washington later this month for more trade talks, possibly signalling progress in talks between the US and China on trade, has boosted risky and trade focused currencies overnight. As it stands, the yuan is on course for its best week since 2005 and, while the majority of this pick-up has been down to the weaker US dollar, softer Fed policy and possible good news on trade are both helping more than ever.

In the short term, the stronger yuan is more of a help for the Chinese Economy than a weaker one; exports may be hurt slightly but a more valuable yuan insinuates against outflows from the wider Chinese economy into other assets.

This is not to say that the yuan will stay strong and we believe that the economic data and wider stimulus from the Chinese authorities will make sure that the CNH finishes the year weaker than it started.

EUR: Foundations for growth

The single currency has managed to hold above the 1.15 level against the US dollar for a couple of days. Yesterday’s publication of the minutes from the European Central Bank’s December meeting were decent enough to keep the EUR strong with investors starting to believe that seeds of further growth are being fertilised and that wider, stronger wage pressures should be enough to meaningfully create inflations.

Italian industrial production figures are due this morning.

GBP: Waiting on hope

Another day, another Brexit debate and no movement closer to a significant intervention on what will happen over the course of the next 77 days. 11 weeks from now is March 29th and, while the pound may be able to extract a few bits of strength against the US dollar, against other currencies it remains weak and will do so until some answers are found.

Today will see the first round of GDP data from the UK economy from the month of November plus industrial and manufacturing production at 09.30. GDP is expected to show a slowing to 0.1% – almost stagnation – while industrial and manufacturing production should rise on wider demand for utilities over the winter period.

Have a great day and a better weekend.