The British pound has posted sharp losses to kick off the week. In Monday’s North American session, GBP/USD is trading at 1.4035, down 0.91% on the day. On the release front, there are no British events. In the US, Personal Spending slowed to 0.4%, shy of the estimate of 0.6%. On Tuesday, the UK releases Net Lending to Individuals. In the US the key indicator is CB Consumer Confidence and President Trump will deliver the State of the Union address.
The US dollar continues to struggle, and the pound jumped on the bandwagon, jumping 4.0% in January. Last week, GBP/USD pushed above 1.43 for the first time since June 2016. The greenback didn’t get any favors from US Treasury Secretary Steven Mnuchin, who said that the US had no problem with a weak US dollar. That comment pushed the dollar sharply lower, with the pound gaining 1.5% on Wednesday.
The EU has drafted guidelines regarding the transition period after Britain leaves the European Union in 2019. The European proposal calls for Britain to abide by EU rules, including freedom of movement, during the transition period which would last until 2020. However, it’s unlikely that the May government will simply accede to this proposal. Britain wants a longer transition period as well as say in the makeup of the transition period.
In the US, recent GDP releases have pointed to strong growth of 3% or higher. This resulted in some disappointment on Friday, as Advance GDP came in at 2.6%, short of the estimate of 3.0%. The economy grew 2.3% in 2017, compared to 1.6% in 2016. Growth in Q4 was affected by stronger consumer spending, which led to a surge in imports. At the same time, the increase in consumer spending also boosted inflation, as the personal consumption expenditures index, which the Fed prefers to use, rose 1.9% in the fourth quarter, up from 1.3% in Q3. A strong US economy has boosted the manufacturing sector, as durable goods orders in December hit 2.9%, crushing the estimate of 0.6%. This was the highest gain in six months, and helped make 2017 a banner year. Durable good orders increased 5.8% in 2017, the sharpest expansion since 2011.
