The British pound has lost ground for a third straight day. In Thursday’s North American session, GBP/USD is trading at 1.4032, down 0.31% on the day. On the release front, Britain’s current account deficit narrowed to GBP 18.4 billion in the fourth quarter. British Final GDP remained unchanged at 0.4% in Q4. In the US, unemployment claims impressed, dropping to 215 thousand. This easily beat the estimate of 230 thousand. Consumer confidence also improved, as UoM Consumer Sentiment rose to 101.4, breaking past the 100-barrier for the first time since October. However, the indicator missed the estimate of 101.9 points.
Britain and the European Union recently agreed to a transition phase in the Brexit process, which is meant to cushion Britain’s departure from the club. In particular, the business sector will have to adapt to the new reality of post-Brexit. The British economy has performed better than most had expected, with the uncertainty over Britain’s departure from the European Union in March 2019. However, indicators released on Wednesday pointed to some glaring weaknesses in the British economy. The CBI Retail Sales survey has showed sales volumes softening in recent months, and this troubling trend continued in March, with a reading of -8 points. Consumer confidence is also waning, as GfK Consumer Confidence has posted consecutive declines since April 2016. Still, the British pound has enjoyed a solid March, with gains of 2.6% against the US dollar.
The US economy continues to expand at a brisk clip. Revised GDP for the third quarter came in at 2.9%, beating the estimate of 2.7%. This reading was revised upwards from the initial GDP estimate of 2.5%. Although fourth quarter growth was solid, it could not keep up with a superb third quarter, which posted a gain of 3.2%. As for 2018, first quarter growth is expected to soften to 1.8%, but there is still a strong chance that the economy could hit 3% growth this year, as promised by US President Trump. The catalysts for such a rosy prediction are the massive tax cut and higher government spending. Where does this leave the Federal Reserve, which raised interest rates last week? Currently, the Fed is projecting to more rate hikes this year, but if the economy remains strong and inflation levels move closer to the Fed target of 2%, we could see four rate increases in 2018.
