UK Retail Sales and GBP, with Trump and the USD in Focus

The markets were on pause through the Asian session this morning, early gains in the Dollar easing ahead of the European open, with the markets looking ahead to a possible vote later today on the Affordable Care Act.

The U.S administration worked on garnering the necessary support through the day with news of progress providing support for the Dollar, though there’s plenty riding on the administration’s ability to be able to smoothly pass the bill through the house.

The markets are taking Trump’s ability to pass through the Affordable Care Act as a barometer on the administration’s ability to pass through tax reforms, deregulation and a $1tn fiscal stimulus package.

While news of progress provided support for the Dollar, the markets are unlikely to respond until the Bill is passed, though it’s not just the Bill that has been weighing on the Dollar, sentiment towards the promise of a fiscal stimulus package adding to the Dollar’s recent decline.

We can expect the markets to continue to respond to news from Capitol Hill through the day, progress expected to provide further support for the Dollar, with economic data out of the U.S likely to be brushed aside later today, while FED Chair Yellen could add to the Dollar sensitivity, should Yellen talk of a 4^th rate hike this year in a speech scheduled for this afternoon.

Across the pond, the pound is also on the spotlight with February’s UK retail sales figures scheduled for release this morning. Speculation over BoE monetary policy has driven cable to $1.25 levels through the early part of the day, with the jump in inflation and pullback in consumer spending raising expectations of a rate hike in the wake of the British government invoking Article 50.

Today’s figures could buy the BoE time to assess whether the recent fall in oil prices will bring inflation back to below the BoE’s 2% target, though the jump in the annual rate of inflation is not just down to a recovery in oil prices, but also the effects of the post EU referendum slide in the pound.

Forecasts are for retail sales to partially reverse declines reported at the turn of the year, though we don’t expect the figures to shift sentiment towards the outlook on monetary policy, the recent easing in wage growth and jump in inflation expected to continue weighing on domestic consumption as Britain enters the unknown with a departure from the EU.

At the time of the report, the Dollar Spot Index is up 0.10% at 99.781, recovering from an intraday low of 99.631, with cable up just 0.05% at 1.24907, easing from an intraday high of $1.2516.

The pound is likely to be under pressure ahead of the retail sales figures, with market sentiment towards the Affordable Care Act expected to provide support for the Dollar before the wires get busy with noise from Capitol Hill.