The vote that wasn’t
On Friday the American president withdrew his first serious attempt at legislation before it was put to a vote in the House of Representatives. His Trumpcare health bill sought to reduce the cost to the government of the Obamacare act that was put in place six years ago. Unfortunately for Mr Trump, the stock market and the dollar, too many of his Republican party members were against it, some because it went too far in reducing care provisions, other because it didn’t go far enough. So he pulled it, in order to avoid the embarrassment of being defeated by his own party.
Investors saw the episode as symptomatic of a dysfunctional relationship between the White House and Capitol Hill. They worried that the “good bits” – from their point of view – of Mr Trump’s policy might run into similar problems in Congress. If so it would prejudice the president’s plans for tax reform, financial deregulation and infrastructure spending, the very measures that got everyone excited about the dollar and the stock market at the end of last year.
As a result the US dollar was one of the week’s back markers. It lost one cent to the euro and more than two to the pound.
Two sets of UK data shone a positive light on sterling. The first showed the consumer price index rising by 2.3% in the year to February, more than the expected 2.1% and comfortably above the Bank of England’s 2% target. The second indicated that retail sales in February were up by 1.4% on the month and 3.7% higher than the same month last year.
Together the numbers helped sterling advance towards the front of the field. It was beaten only by the Japanese yen, which was the safe-haven of choice when investors became antsy about the US dollar. The pound went up by an average of 1.5%, adding one euro cent and half a Swiss cent.
The Gordhan effect
South Africa’s rand was shaken on Monday when finance minister Pravin Gordhan was summoned back from an overseas trip. The suspicion was that he was about to be sacked by President Zuma and investors did not like it. They see him as a safe pair of hands and have reacted badly in the past when his position was put in jeopardy. This time it cost the rand -3.3% on the day, taking the gloss off what had been, until then, an encouraging run of success. Ironically, Mr Gordhan had been on a round-the-world road show trying to win the hearts and minds of investors and credit ratings agencies.
The good news
The 2.3% headline inflation number reduced any pressure the Bank of England might have felt to relax monetary policy further. The figure was not high enough to provoke an interest rate increase but it probably means that the thoughts of the Monetary Policy Committee are at least leaning in that direction.
The bad news
The old retail price index was up by an even bigger 3.2% on the year, yet data the previous week showed wages rising by an annual 2.2%. However you cut it, prices are rising more quickly than incomes. That does not bode well for consumer spending or economic growth.
Sarah, Senior Account Manager at Moneycorp
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