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MONETARY POLICIES


spending, which increased by its highest rate this year at 0.6% from 0.2%. Business investment also grew - but only marginally at 0.2% to £45.8 billion from £45.7 billion in Q2.


On December 13, UK employment data was overall di s appoint ing , with the Unemployment Rate remaining at 4.3% versus expectations of 4.2%. Despite the miss on the Unemployment Rate, GBP weakness was short lived due to the slight beat on Average Earnings, which printed at 2.3% versus the market consensus of 2.2%.


Inflation for November was overall positive, with CPI Y/Y printing at 3.1% versus the market consensus of 3.0% (surpassing the Bank of England’s expectations of peaking in October). CPI M/M and Core CPI M/M were also positive at 0.3%, versus expectations of 0.2% for both data points.


I currently view the Great British Pound as having a weak bearish fundamental bias as expectations for future hikes have been pushed back to September 2018, while Brexit remains a key risk.


The Federal Reserve - USD


At their December meeting, the FOMC voted 7-2 to increase the Federal Funds Rate by 25 basis points to 1.25% - 1.50%, with the Fed’s Kashkari and Evans as the two


printing


FX


Preliminary GDP for Q3 was overall positive,


at 3.3% versus


expectations of 3.2% and the advanced estimate of 3.0%. A deeper look into the report shows at 3.3%, GDP expanded at its quickest rate since 2014 with a rebound in government i nv e s tm e n t offsetting a mode r a t io n in


consumer spending.


No vemb er ’ s empl o yment report mixed


printed with


N o n - F a r m Payrolls, beating estimates


at 228K versus the


dissenters. In the accompanying statement and economic projections, the Fed slightly raised their GDP growth forecasts, stating that they see a faster growth trajectory and decline in the jobless rate.


In her last press conference, Fed Chair Yellen stated that most policymakers factored in fiscal stimulus into their outlook and reiterated that rate rises would be gradual.


Overall, with no hawkish surprises from Yellen and the rate path trajectory for 2018 remaining unchanged at three hikes, USD remained pressured with EURUSD breaking back above the 1.1800 handle and GBPUSD back above the 1.3400 handle.


market consensus of 200K. Average Hourly Earnings missed estimates at 2.5% Y/Y and 0.2% M/M versus the consensus


of 2.7% and 0.3%


respectively. Te Unemployment Rate remained unchanged, as expected, at 4.1%.


Inflation for November was slightly disappointing with both Core CPI Y/Y and Core CPI M/M marginally missing expectations by 0.1% at 1.7% and 0.1% respectively. Headline CPI printed in line with expectations at 2.2% Y/Y and 0.4% M/M.


I currently view USD as being bullish from a fundamental perspective with the Fed expected to continue tightening monetary policy. Tree more hikes are planned for 2018.


FX TRADER MAGAZINE January - March 2018 63


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