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Posted by portugalpress on September 21, 2018

The pound did not have the best start to the week after the previous Friday’s newspapers were full of Bank of England governor Mark Carney’s suggestions that house prices would fall by 34% in the event of a no-deal Brexit. This was not the rhetoric of “project fear” as some believed, but the outcome of a stress test carried out on commercial banks to examine the potential impact of such an outcome. Higher-than-expected UK inflation data helped the pound mid-week. Data from the Office of National Statistics showed the rate rose to 2.7% in August. This is the highest level in six months and against a forecast of 2.4%. After the data were announced, the pound hit a 9-week high against the US dollar and a 7-week high against the euro. The optimism for the pound was short-lived, however, as the Prime Minister cast doubt on the success of this week’s Brexit meeting in Salzburg by spurning the EU's "improved" proposal for the internal Irish border.

Overnight she threw more petrol on the fire when she said there could be no delay to Brexit, even if it meant an abrupt departure with no deal. UK retail sales rose 0.3% in August against a forecast fall of 0.2%. The pound climbed again at the news but the pound continues to be harried by the matter of Brexit and there was little cause for optimism coming from Salzburg.

While the pound had a tumultuous week, the euro generally held a steadier course. There was little in the ecostats or the political sphere to move the central currency. ECB President Mario Draghi delivered the keynote speech at a conference in Berlin entitled “Making Europe's Economic Union work,” and his cautious optimism and pragmatic approach let Brexit and the pound take the biggest headlines.

The Greenback added a third of a cent against sterling and took two thirds of a cent off the euro after US retail sales increased by 0.1% instead of the forecast 0.4%. Although the monthly increase fell short of the mark, there were upward revisions to earlier data and sales in August were up by 6.6% from the same month last year. The University of Michigan published the provisional result of its consumer survey. It put confidence at 100.8, the second-highest level since 2004 and beaten only by the 101.4 recorded this March. Overall, the figures suggested that the US economy is continuing to perform strongly in the third quarter and that the Federal Reserve has no reason to have second thoughts about pursuing its policy of raising interest rates gradually but steadily. There was some concern later in the week and the U.S. dollar fell to a nine-week low against a basket of major currencies as investors shifted their focus to the Federal Reserve’s monetary tightening plans. This week the biggest potential influence on the US dollar appeared to be the ongoing trade war between the US and China. Trump imposed tariffs on $200bn of Chinese imports on Monday. President Xi responded with tariffs on $60bn of US imports, some of which will be taxed at 10%, the remainder at 5%. Xi's measured response reinforced investors' belief that this latest round of tit-for-tat poses no increased economic danger.

International trade was the key influence on the Canadian dollar this week also. On Thursday, the Canadian dollar strengthened to its highest in more than three weeks against its U.S. counterpart as investors awaited clues on the prospect of a deal to revamp the NAFTA trade pact.

Down under, the Kiwi put in a late run after New Zealand second quarter growth came in much better than forecast. New Zealand's gross domestic product expanded by 1.0% in the second quarter, putting annual growth at 2.8% for the year to June. The numbers sent the NZ dollar 0.8% higher on the day. The Australian dollar could only manage a 0.3% rally, even after Bloomberg drew attention to an RBA study which suggested that it could benefit from a trade war.

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