It was a set of Chinese data that rattled world markets overnight, triggering a slump in stock markets and causing a surge in demand for the safe-haven US dollar. Traders were alarmed that Chinese retail sales and industrial production had slowed to their weakest pace of growth in 15 years, raising fears that the world’s economic growth engine was grinding to a halt. At the same time, news emerged that the leveraged loans market in the US had suffered a steep fall, showing the second largest drop on record as $2.5bn flowed out of the market in the past week. Coming so soon after the 10-year anniversary of the failure of Lehman Brothers, this news rattled investors.
There was further unwelcome news coming from the US yesterday in the form of the monthly federal budget, which recorded its biggest ever budget deficit for November at an 18.4 per cent rise on November 2017.
Nevertheless, with the US dollar being the world’s safe haven currency, all of this unwelcome economic news caused a surge in demand for the ‘greenback’.
This in turned made a rudderless pound stagnate and then sink in the pound US dollar pairing.
With a lack of UK data coming out today, markets have been focused on Theresa May’s attempts to gain concessions from the EU for her withdrawal agreement, with yesterday’s pound rally having now faded.
There will be a number of important ecostats coming out in the US later today in the form of November’s retail sales figures, which are expected to show a sharp decline, potentially weakening the dollar if they do so.
Nevertheless, any downside pressure could be offset by industrial production, capacity utilisation and PMI figures coming out shortly afterwards, which are all expected to at least remain steady or show some growth.
Other than these data releases pound US dollar traders will likely be looking forward to wrapping up a tumultuous week and setting their sights on next week’s Bank of England meeting, where any hints of there being a further UK interest rate hike in 2019 are likely to be seized upon.
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