The British pound moved higher earlier in the Thursday session, but has given up these gains. In North American trade, GBP/USD is trading at 1.3304, down 0.14% on the day. On the release front, it is a busy day in the UK. British Second Estimate GDP edged up to 0.4%, matching the estimate. Preliminary Business Investment improved to 0.2%, but missed the forecast of 0.3%. As well, CBI Realized Sales soared to 26, crushing the estimate of 5 points. U.S markets are closed for public holidays, and there are no U.S events on the calendar.
If the British economy is slowing down, someone needs to notify the CBI, whose indicators have pointed sharply higher this week. British 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. On Monday, CBI Industrial Order Expectations on Monday, an important barometer of activity in the manufacturing sector. 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.
On Wednesday, British Finance Minister Philip Hammond released the August Budget, which was noteworthy for a large contingency fund for Brexit. Hammond announced he was setting aside GBP 3 billion pounds over the next two years, beefing up the contingency fund of GBP 700 million. Meanwhile, the Office for Budget Responsibility (OBR) downgraded Britain’s GDP for 2017, from 2% to 1.5%. The OBR also revised downwards productivity growth and business investment, further signs that the economy could be headed for a down-spin.
Federal Reserve policymakers remain upbeat about the US economy, according to the minutes of the most recent policy meeting. The minutes, released on Wednesday, indicated that policymakers expected the U.S economy to continue showing strong growth, and predicted that interest rates will be raised in the “near term”. The members discussed the vexing question of why inflation has been persistently low (no quick-fix solution was provided), with most agreeing that a tight labor market should lead to higher inflation levels. Although policymakers did not provide further hints about the timetable of a rate hike, the markets remain convinced that additional rates are imminent. The odds of a rate hike in December are 91%, and the odds a January raise are at 89%.
