The British pound has posted losses in the Tuesday session. In North American trade, GBP/USD is trading at 1.3523, down 0.33% on the day. In economic news, there are no major British releases on the schedule. In the US, JOLTS Jobs Openings was unexpectedly soft, dropping to 5.88 million. This was well short of the estimate of 6.05 million. On Wednesday, the UK publishes Manufacturing Production, and the US releases Import Prices.
Theresa May & Co. have not had an easy time with the Brexit negotiations, as dealing with the Europeans has been an arduous and frustrating task. Moreover, there are serious divisions within the government with regard to the talks. Compounding May’s difficulties, the British public is not impressed with May’s performance on Brexit, according to an ORB poll published on Monday. The poll found that 63% of voters are dissatisfied with the government’s handling of Brexit, and voters are almost evenly split on whether Britain will be better off after Brexit. With a razor thin majority in parliament, Prime Minister May can ill afford any mistakes, and if her government runs into trouble, she may be forced to call elections, which could shake up the markets and send the pound downwards.
When the Federal Reserve is in the headlines, it’s usually on the topic of interest rates. However, another important parameter is the Fed balance sheet, which has ballooned to $4.2 trillion. Starting this month, the Fed will reduce its portfolio, which grew tremendously during the financial crisis of 2008-2009. However, a strong US economy has allowed the Fed to begin trimming the balance sheet. Incoming Fed Chair Jerome Powell, who takes over in February, has estimated that the balance sheet could drop to anywhere between $2.4 trillion to $2.9 trillion after several years of cuts. Fed policymakers have not indicated a magic number for the balance sheet, but the cuts indicate a vote of confidence in the US economy.
