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Posted by portugalpress on March 02, 2018

Last week the pound strengthened by an average of 0.5% against the other dozen most actively-traded currencies. The main focus for sterling was Brexit, and whether the government could come up with a plan that would avoid alienating half the ruling Conservative party.

The pound dipped briefly after the downward revision of gross domestic product for the fourth quarter of 2017. It came out at 0.4% and business investment growth came in at zero after an increase of 0.5% in Q3. A disappointing four-point fall in the CBI's Distributive Trades survey of retail sales, from 12% to 8%, got lost among the GDP data and did no real damage. Gfk's index of consumer confidence was a point lower on the month at -10 while the BRC's shop price index was down by an annual 0.8%. Optimism that opposition leader Jeremy Corbyn would commit the Labour party to keeping Britain in the/a EU customs union after Brexit proved unfounded. The question of the Irish border is becoming ever more contentious as the EU rejected the initial proposals of the British government; they are due to present a counter proposal today. The disappointment at not reaching an agreement caused the sterling to track lower across the board by an average of 0.6% late in the week.

European Central Bank president Mario Draghi met the European Parliament's Committee on Economic Affairs at the beginning of the week. There had been speculation that he might hint at a wind-down of the bank's asset purchase programme, on which it has so far spent more than €2.5tr. No such hint was forthcoming. This was compounded later in the week when Bundesbank president Jens Weidmann, Mr Draghi's likely replacement next year, echoed these views. The implication is that euro rate increases could be a long time coming.

Meanwhile, the ecostats coming out of the Eurozone remain upbeat; .gross domestic product data showed Sweden's economy expanding by 0.9% in the fourth quarter while growth in France, Portugal and Switzerland came in at 0.6%, 0.7% and 0.6% respectively.

As in the UK, ecostats have less impact that political and organisational issues in the US at the moment; perhaps because they were a mixed bag. Gross domestic product data showed the economy expanded in the fourth quarter by 0.6%. Personal consumption expenditure, the Federal Reserve's favoured measure of US inflation, was a tick lower than expected at 2.7%. America's residential property market showed pending home sales down by a monthly 4.7%. Jerome Powell struck a note of economic optimism for his testimony to the House Financial Services Committee, which financial markets interpreted as monetary hawkishness. Mr Powell stated that "the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE [personal consumer expenditure] price inflation to 2% on a sustained basis". Taken as a whole, the new chairman's testimony implied that the Fed would continue to tighten policy this year. Futures pricing infers 2.9 quarter-percentage-point rate increases in 2017 and it is not hard to find analysts who put that number closer to four. The dollar responded positively to Mr Powell's comments midweek: it strengthened by two thirds of a cent against the pound and took a full cent off the euro.

The Canadian dollar took a hit due to domestic stats at the end of last week. Retail sales were supposed to have gone up by 0.2% in December; instead they fell 0.8%. The Loonie dropped nearly a cent on the news but recovered much of the lost ground the following day. Some of that recovery was the result of Canadian inflation printing higher than expected at 1.7%. Further less-than-stellar news came from down under, where Australia's manufacturing sector purchasing managers' index a point lower at 57.5.

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