The British pound has posted losses in the Tuesday session. In North American trade, GBP/USD is trading at 1.3925, down 0.28% on the day. In economic news, Federal Reserve Chair Jerome Powell made his first appearance before Congress. Meanwhile, durable goods reports were dismal. Core Durable Goods declined 0.3%, short of the estimate of +0.4%. This marked the second decline in three months. Durable Goods plunged 3.7%, missing the estimate of -2.4%. This reading was the sharpest decline since July. There was better news from CB Consumer Confidence, which improved to 130.8, well above the estimate of 126.2 points. Later in the day, the UK releases BRC Shop Price Index and GfK Consumer Confidence. On Wednesday, the US releases Preliminary GDP, with an estimate of 2.5%.
There were no dramatic moments during Jerome Powell’s testimony before a congressional committee on Tuesday. Powell was cautious, saying that the Fed planned to continue its current policy of gradual rate increases, despite the stimulus of government spending and recent tax reform. Powell sounded optimistic about economic conditions, noting that the US economy was benefiting from the global recovery as well as changes in fiscal policy. Importantly, Powell did not address the question of an acceleration of rate hikes. Currently, the Fed has projected three rate hikes in 2018, with a March hike priced in at 87%, according to the CME’s Fed Watch. However, with inflation moving higher and the economy continuing to perform well, many analysts expect the Fed to raise rates four or more times this year. Any hints at an increased pace of rate hikes could send the US dollar broadly higher.
Brexit negotiations have been bumpy from the start, but matters seem to be deteriorating almost daily. Prime Minister May is in a tough spot, with the Europeans dismissing her latest proposals on a trade deal after Brexit, and many members of her party supporting playing hard with Europe. May has proposed that a trade deal would allow some divergence with EU regulations in certain industries, but the Europeans have dismissed this as ‘cherry picking’, which they say is a non-starter. May will lay out her post-Brexit vision of relations with the EU in a speech on Friday and if the Europeans pour cold water on her plan, the markets could react negatively.
