HomeContributorsFundamental AnalysisPound Edges Lower on Weak Housing Inflation Report, CPI Next

Pound Edges Lower on Weak Housing Inflation Report, CPI Next

The British pound has posted slight losses in the Monday session. In North American trade, GBP/USD is trading at 1.3353, down 0.26% on the day. On the release front, British Rightmove HPI declined 2.6%, marking the fourth decline in five months. In the US, JOLTS Openings softened to 6.00 million, shy of the estimate of 6.03 million. On Tuesday, inflation indicators will be in focus. The UK releases CPI, which is expected to remain unchanged at 3.0%. The US will release the Producer Price Index.

There was positive news for Prime Minister May, who appears to have received a green light from Brussels to move forward in the thorny Brexit negotiations. There was a major breakthrough on Friday, as EU Commissioner Jean-Claude Juncker announced that sufficient progress had been made on non-trade issues in the Brexit talks. The announcement came after May managed to appease both the Irish government and the DUP party, after she promised both that Northern Ireland would not have any hard borders after Brexit. The role of the European Court of Justice was also a prickly issue, but the EU has apparently agreed that European citizens living in the UK will be subject to British courts only. This means that Britain and Europe can now move to Phase II and discuss trade relations. With Britain scheduled to leave the EU in March 2019, time is of the essence. What will a new trade relationship look like? On Sunday, Brexit minister David Davis said he envisions a comprehensive trade deal with Europe, which would be signed just after Britain leaves the bloc. The EU recently signed a free-trade treaty with Canada, and Davis said that he wants an agreement "Canada plus plus plus", meaning that the deep trading ties between the sides and access to European markets would remain intact.

The markets continue to digest Friday’s US employment numbers, which were a mix. Nonfarm Employment Change softened in November, but the reading of 228 thousand easily beat the estimate of 198 thousand. However, Average Hourly Earnings, which measures wage growth, came in at 0.2%, shy of the estimate of 0.3%. Analysts remain stumped as to why wages remain stubbornly low, given a red-hot labor market which is running at full capacity. On an annual basis, wages rose 2.5%, short of the forecast of 2.7%. The Fed is also concerned with the lack of wage growth, and this could have a significant effect on monetary policy – if wage growth and inflation shows improvement in 2018, the Fed could raise rates up to three times in 2018.

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