Good morning,

Sterling driven to 3 week high by inflation

Much like the rest of London, currency markets were only briefly perturbed by the events that took place in Westminster yesterday afternoon. Sterling initially pulled lower before recovering against both the US dollar and the euro as conversations switched back to the political climate in the United States.

‘Loan wolf’ style attacks such as we have seen in Nice, Ottawa and now in London are not market moving events in themselves. We also doubt that much of the politics of the UK will change in response to this although I’m sure some will find justification for anything within this violence.

What to watch now?

It is within Washington where the day’s political risk truly lies as passage of the American Health Care Act (AHCA) – the Trump Administration’s ‘repeal and replace’ of the Obamacare health package is being used as a litmus test on the ability of the President to meaningfully pass reforms on taxes and stimulus that have so far been the main boosters of the US dollar since he won the election.

The ins and outs are slightly more complicated than a simple ‘does the bill pass?’ question and answer. We think that there is a reasonable chance that any bill passes the House of Representatives but struggles within the Senate given the number of Republican Senators who have expressed reservations over the bill either going too far or not far enough.

Trump and Ryan need 216 and 51 “yes” votes for the American Health Care Act to pass the House and the Senate respectively with voting beginning later today although negotiations and wrangling could easily see the Senate hold over their vote into Friday.

The momentum for the US dollar is very much in question at the moment and even should the AHCA pass, the number of fronts the Trump Administration finds itself fighting on damages the market belief that the USD is set to outperform other members of the G10 basket. For now the pain trade in currency markets is a continual weakness of the US dollar.

The Day Ahead

Before the fun and games in Washington begin we have UK retail sales due at 09.30 which will give us a further look at the health of the consumer in the UK as well as how well the High St is dealing with rising costs and falling footfall as we begin Brexit next week.

Have a great day

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