Forex Weekly

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Pier-Luigi Bonelli Foreign Exchange Advisor
José-Manuel Luna Foreign Exchange Advisor
Ugo Biancaniello Foreign Exchange Advisor

In Europe the economy grew by 0.6% q-o-q in Q3. That took y-o-y growth to 2.5%, the highest rate since Q1 2011 and above the average growth seen before the financial crisis. If anything, the PMIs point to growth picking up even further in the near term. Strong demand from abroad and bullish sentiment at home are continuing to support the cyclical recovery. For the inflation outlook, the big news over the past couple of months has been the rise in the oil price, now up more than 30% since its late-June low. Over the next year or two, this will partly offset the disinflationary impact of the euro appreciation.

In the US, Q3 productivity growth was unchanged at 3.0% in the second estimate, having picked up significantly from a 1.5% reading in Q2. Nonfarm business output rose 4.1% q/q saar (3.9% in Q2 and 1.8% in Q1), driving much of the improvement in productivity over the past two quarters. Employee hours slowed to 1.1% (2.4% in Q2), further helping the productivity rebound. Compensation per hour was revised lower to 2.7% (from 3.5% in the advance estimate) and adjusted for inflation real compensation was up 0.7% (from 1.5% in the advance estimate).

In India, MPC maintains a neutral stance in its policy review on 6 Dec, the Monetary Policy Committee (MPC) maintained the repo rate at 6%. The decision (5 out of 6 MPC members voted in favor of keeping rates on hold) was in line with consensus expectations. The MPC forecasts inflation to rise from the current levels. However, keeping in mind the output gap dynamics, it decided to maintain a neutral policy stance and monitor incoming data. MPC retained its FY18 real GVA growth forecast at 6.7% YoY. In the media briefing, the RBI official mentioned that they expect GVA growth to pick-up to 7% YoY in Q3 FY18 and 7.8% YoY in Q4 FY18.