The British pound moved higher on Monday, but has given up these gains. In North American trade, GBP/USD is trading at 1.3332, up 0.02% on the day. On the release front, there are no UK events on the schedule. In the US, New Home Sales surged to 687 thousand, well above the estimate of 627 thousand. On Tuesday, the focus will be on the Bank of England which publishes the results of its bank stress tests, as well as the semi-annual Financial Stability report. The US releases CB Consumer Confidence, with an estimate of 123.9 points. As well, Federal Reserve Chair Designate Jerome Powell will testify before a Congressional committee.
There may be signs that the British economy is slowing down, but CBI retail sales and manufacturing reports looked sharp last week. Retail sales jumped in November, as CBI Realized Sales rebounded with a strong reading of 26 points. The release was all the more impressive, as the indicator came in at -36 points in October. CBI Industrial Order Expectations, an important barometer of activity in the manufacturing sector, also impressed. The indicator surged to 17 points in October, rebounding from the September release of -2 points. Manufacturing indicators continue to point upwards, boosted by strong global demand and a weak British pound. Export order books are at their highest levels since 1995, and the markets are predicting that the export and manufacturing sectors will continue to shine in the fourth quarter.
All eyes will be on Jerome Powell, who testifies before the Senate Banking Committee on Tuesday for his confirmation hearing. Will Powell be a clone of outgoing chair Janet Yellen? Powell inherits an economy that is in excellent shape, but persistently low inflation remains a nagging problem. Fed policymakers have differing views on what to do about inflation, with some members proposing that the Fed drop its 2 percent target, in favor of a "gradually rising path" for prices. The Fed remains confounded by low inflation and wage growth, despite a labor market that is at full capacity. Still, the Fed will likely pull the rate trigger next month, and could raise rates up to 3 more times in 2018 if the economy continues to expand at its current pace.
