Dollar continues to recover from three week low

The drop in the dollar earlier this week came courtesy, again, of political uncertainty at home as markets continue to mark down the probability of Trump’s tax reform plan getting through the Senate successfully. Reportedly, some of the changes to the plan that include repealing elements of Obamacare and the favoring of larger businesses over small have turned some Republican senators against the legislation and, understandably, the Democrats. While the proposed plan’s prospects in the House are somewhat better, if the Senate doesn’t follow suit the ‘Cut Cut Cut Act’ could be left on the cutting room floor much like The Wall, Obamacare repeal and proposed clamping down on international trade.

The dollar’s recovery from the lows seen yesterday has continued this morning, bringing EUR/USD back below 1.18. Against sterling though, the greenback’s not faring so well, with GBP/USD eyeing last week’s highs at 1.3230.

UK retail sales trend remains poor

While today’s UK retail sales number beat expectations, it comes after a clattering fall in September and does nothing to ease concerns that retailing is under severe pressure heading into Christmas, the only time of year that it makes any money. The real wage picture in the UK is not supportive of consumption, neither is the consumer credit outlook and therefore we remain very concerned for consumer focused businesses and their wider contribution to growth. Shopping phenomena such as Black Friday and Cyber Monday have altered the retail landscape in recent months and we do foresee that some demand will be held over for November’s numbers as customers hope to grab themselves a bargain. Bargains used to be found in the basement and those on the High St will hope that this slowing of consumption ends here.

Federal Reserve continue to talk down terminal interest rate

This morning’s comments from Fed’s Mester talked down the prospect of high interest rates returning to the US anytime soon. While the odds of another December rate hike are still high, Mester today argued that an ageing population, lower levels of productivity and labor market growth will mean that so-called cyclical highs or terminal interest rates will be much lower than they would have been in the past. This rhetoric is likely to pick up in earnest in 2018, as the US economic recovery comes closer and closer to reaching its peak.

The day ahead

It’s a busy day for central bankers across the world with four speakers due from the Federal Reserve, three from the Bank of England and one from the European Central Bank. Industrial production numbers from the US could turn some heads, but focus is seen remaining on the political developments at home.

Have a great day.