Trump versus Mnuchin – and Draghi chimes inBy Arnaud Masset
It sounded like the WWF, but it actually was the WEF: US President Donald Trump contradicted his Treasury Secretary Steven Mnuchin – sending the EUR/USD on a roller coaster over the last 24 hours. Mnuchin said on Wednesday that a weak dollar was good for US trade. Trump said on Thursday "the dollar is going to get stronger and stronger and ultimately I want to see a strong dollar."
As the European Central Bank announced yesterday it would hold interest rates, the Euro printed a new multi-year high at $1.2537, the highest level since 16 December 2014. Shortly afterwards EUR/USD eased to 1.237, as Trump supported the dollar in an interview at the World Economic Forum (WEF) in Davos, Switzerland. On Friday, the Euro climbed back to 1.2494 as the US dollar fell across the board.
At the ECB’s press conference, President Mario Draghi remarked on Mnuchin’s comments, saying that EUR/USD has increased not only because of the improvement of the Eurozone’s economy but also “in part due to exogenous reasons that have to do with communication. But not by the ECB, but by someone else. This someone else’s communication doesn’t comply with the agreed terms of references.” This jarring comment shows that tensions persist, that international competitiveness through monetary policy is still a hot button, one that countries use but don’t usually mention.
Britain’s economy weakBy Vincent-Frédéric Mivelaz
Although 2017 was positive and give signs of recovery, the UK’s annual growth rate in December (to be released today) is expected at 1.50%, among the lowest rates in the G20. Uncertainty surrounding Brexit could strongly hamper UK business and household consumption in 2018. Britain officially leaves the European Union on 29 March 2019, as confirmed yesterday by Chancellor Philip Hammond, and is facing serious difficulties in the coming Brexit negotiation. For instance, banks are shifting their headquarters: their sector added 7.2% of total UK gross value, GBP 124.20 billion in 2016.
Other economic data are modestly positive. December 2017’s annual consumer price index rose 3.0% (in line with expectations), with December’s Retail Price Index at 278.1 (consensus: 277.6) and December’s PPI at 0.4% (consensus: 0.2%). November unemployment clocked 4.3% (lowest for three months in a row since 1975). The stock market is strong, and GBP/EUR has stabilised (-12.73% since referendum, at 1.14).