It was a busy and a volatile week for the U.S. dollar as the U.S. Federal Reserve hiked interest rates in a widely expected move.

The central bank stuck to its baseline scenario of three rates hikes in 2018. The U.S. dollar however weakened despite a Fed rate hike.

Last week also saw President Trump imposing tariffs targeting imports from China.

The markets were cautious ahead of what could turn out into a full blown trade war.

China hit back with only $3 billion in tariffs targeting U.S. imports, in response to the $60 billion tariffs imposed by the U.S. administration.

UK Inflation slows. Wages gain. BoE Meeting

Consumer prices in the UK were seen easing back in the month of February.

Headline inflation rose at a slower pace of just 2.5% on the year ending February 2018.

This was more than analysts expectations.

Core inflation was also seen easing back in February which was a welcome sign for the UK which has been struggling with higher consumer prices and lower wages.

With inflation cooling down, the markets are expecting the consumer prices in the UK to remain around the current levels.

Although this means that consumer prices still remain above the BoE’s 2% inflation target rate.

Adding to the positive data was the fact that while the UK’s unemployment rate eased to 4.3% while wage growth saw signs of picking up. After staying stubbornly flat, average wages were seen rising 2.8% beating estimates of a 2.6% increase. Data for the previous month was also revised higher to show a 2.7% increase.

With wages picking up to 2.8% and inflation easing to 2.7%, there was some minor increase in the real wage growth.

The inflation and wage data helped the officials at the Bank of England to confirm that the next rate hike for the UK will come at the May monetary policy meeting.

The BoE held interest rates unchanged but there were two dissenting votes who favored a rate hike at last week’s meeting.

The BoE voted to keep its asset purchases unchanged at 435 billion GBP.

EU and UK strike transitory Brexit deal

The UK and the EU broke fresh ground last week as the two parties announced that a transitory Brexit deal was agreed upon.

This allows the UK to prepare for an orderly withdrawal from the EU and avoids a hard Brexit which was a major uncertainty among investors watching the Brexit progress.

The negotiations, Michel Barnier from the EU and David Davis representing the UK called the deal “decisive step” in the Brexit process.

However, there were still a number of unresolved issues, the major one being the Northern Ireland border and Scotland’s fishing industry.

The Brexit negotiation, David said that the transition agreement was conditional with both sides agreeing to the final withdrawal terms.

Under the transition deal, the UK is expected to remain a part of the EU until December 2020.

The deal also retained all rights of EU citizens living in the UK and vice versa, contrary to the initial demands set forth by UK officials.

According to the deal, the UK would retain access to the single market until December 2020.

EU and UK citizens arriving between the dates are also expected to enjoy the same benefits and rights to those who arrived before Brexit.

The UK is also expected to be part to the EU trade deals with other countries.

The British pound was seen surging on the news as investors cheered the progress and the agreement lifted some uncertainty to the Brexit process..

German economic sentiment at an 18-month low

Economic confidence in Germany posted a sharp decline as the index fell to a one and a half year low in March.

The declines came on account of uncertainty due to the U.S. led trade conflicts, official data from ZEW showed.

The ZEW economic sentiment index was seen falling to 5.1 in March compared to 17.8 in February.

The index on current conditions was seen at 90.7 in March which was also lower than February’s reading of 92.3.

The strong current conditions assessments and weak expectations showed that German growth should not be taken for granted.

The ZEW President Achim Wambach said:

“Concerns over a US-led global trade conflict have made the experts more cautious in their prognoses.”

According to Wambach, the strong euro exchange rate was also hampering growth in Germany which was seen to be reliant on exports.