Statecraft 2 – 1 Statistics
Sterling has prospered despite a string of UK economic statistics that were less than inspiring. It was the top performer among the major currencies, strengthening by roughly 1.5% against the US dollar, the euro, the Swiss franc and the Japanese yen. The pound was fractionally behind the South African rand, which continues to benefit from expectations that Jacob Zuma’s presidency will soon be over.
The UK ecostats were mediocre. Producer, consumer and retail price index data mostly failed to match up to expectations, reducing the upward pressure on interest rates. Retail sales for December were even more dismal than analysts had forecast. The International Monetary Fund predicted that Britain’s economy would expand by 1.5% this year, appreciably less than America’s 2.2% and Euroland’s 2.2%.
Investors were not at all bothered. Everything they heard from Westminster pointed to a Brexit that would be materially less savage than the one they had feared. Be it a “Norway model”, a “Canada-plus-plus-plus” or a “bespoke” arrangement the view is now widespread that both sides want a deal, there will be a deal, and it won’t be a poisonous one.
Euroland and the States
There were political developments in Berlin and Washington too, both of which could have affected the currencies concerned but didn’t. Chancellor Angela Merkel’s CDU got a third bite of the cherry when the SDP party agreed to consider a repeat of the grand coalition that carried Germany through the last two parliaments. Agreement will not be easy but it is seen as preferable – for the euro – to another election.
In the States the peculiar political device that is the “debt ceiling” made its periodic and annoying reappearance. Unlike almost every other democracy, there is a constitutional limit to how much money the US government can borrow. It can be increased, as from time to time it is, but only with a 60% majority in Congress. On Friday night, despite controlling the administration and both chambers of Congress, the Republicans were unable to carry the finance bill. After some horse-trading over the weekend the two sides eventually came to a compromise, which could involve allowing some undocumented migrants to stay in the country.
When the boot was on the other foot in 2013, and the Democrats refused to support a Republican finance bill, there was a shut-down of government that lasted 16 days. More than three quarters of a million “non-essential” federal employees were laid off. In the 2018 version the shutdown lasted only until Monday, allowing no time to organise such layoffs.
Because both sides went into the discussion feeling that they had been unfairly accused of causing the shutdown, each was unwilling to give too much away on the compromise. It was therefore agreed to temporarily suspend the debt ceiling for only a fortnight, until 8 February. At that point, the whole thing begins again.
Sarah, Senior Account Manager at Moneycorp
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