The British pound is almost unchanged in the Thursday trade. In the North American session, GBP/USD is trading at 1.3300, up 0.013% on the day. On the release front, British GfK Consumer Confidence remains weak, pointing to a glum British consumer. The indicator came in at -7, just above the estimate of -8 points. In the US, Personal Spending and PCE Price Index both beat their estimates. Unemployment claims dropped sharply to 221 thousand, beating the estimate of 228 thousand. On Friday, British Manufacturing PMI is expected to dip to 53.5 points. In the U.S, the focus will be on employment data, with the release of nonfarm payrolls and wage growth.
Is the Federal Reserve moving closer to a neutral monetary policy? Recent statements by FOMC policymakers appear to support such a conclusion, which would mean that the Fed would let the economy ‘ride on its own steam’ without intervening by adjusting interest rates. In the meantime, the Fed continues to project two more rate hikes in 2018, after raising rates by a quarter-point in March. The most likely dates for a rate hike are June and September. A fourth hike in December is possible, with a likelihood of about 40%. The minutes of the May meeting noted that policymakers would consider allowing inflation to rise above the Fed’s 2% target for a temporary period, which means that the Fed would not rush to raise rates based on the inflation target.
With the Brexit deadline of March 2019 creeping ever closer, the May government still does not have a coherent plan regarding its departure from the EU. The European Council meets next month, and Brexit is sure to be high up on the agenda. The Europeans have often expressed exasperation at a lack of direction from the British, as there are deep divisions in the May cabinet between the ‘hardliners’ and those who favor a softer Brexit, with close links to the continent. Some lawmakers are raising their voices, calling on May to seek a ‘sensible’ deal with Europe. One vexing issue is the status of the Irish border – how to maintain an open border between Ireland and Northern Ireland when the UK leaves the EU. May has proposed a “new customs partnership” between Northern Ireland and Ireland, but the Europeans have rejected this idea as being unworkable, and want the U.K to simply copy EU trade rules. This suggestion has been rejected by Brexit hardliners, who don’t want to follow orders from Brussels.