3% Forward and 1% back
Following the surge that started with the Exit Poll and having made gains of nearly 3%, the Pound failed to make further headway and corrected significantly lower to circa 1.1975 on the Euro and 1.3300 on the Dollar. Prime Minister Johnson stated that The Withdrawal Act would be voted on this week and again pledged that the UK would leave the EU by January 31st. Futures market data revealed another significant drop in bets against the Pound, but enough remain to underpin Sterling as they are reversed. The market focus will now revert to the economy and the Bank of England’s policy meeting on Thursday, especially after two members voted for a cut at the previous meeting. Also expected is the replacement for BoE Governor Mark Carney.
UK services and manufacturing PMI data is due this morning, although the impact is likely to be muted as a notable shift would be expected after the election. At market open the Pound had moved back above 1.3400 on the Dollar and 1.2033 on the Euro and sentiment looks firm.
US Retail Sales grew 0.2% in November, failing to meet the forecasts of 0.5%, although October’s data was slightly revised. Underlying and control group sales also both missed expectations with a 0.1% monthly increase. Overall, the Dollar was able to shrug off the data, especially with commodity currencies unable to make headway. In this environment, the Euro retreated to the 1.1120 area even though bond yield spreads were little changed on the day.
The Bundesbank slashed the German 2020 GDP growth forecast to 0.6% from 1.2% previously and inflation forecasts were also lowered slightly. Eurozone inflation expectations increased to the highest estimate since mid-September. ECB Vice-President de Guindos stated that the ECB still has room to manoeuvre with rate cuts or quantitative easing if necessary. The Euro was unable to gain support from the optimism that Brexit uncertainty would be resolved quickly following the UK election result and also failed to re-test the 1.1200 area against the Dollar.
This morning’s Eurozone PMI preliminary business confidence readings for December will be important for underlying Euro sentiment. At market open the Euro had advanced to around 1.1140 against the Dollar.
Data To Watch
08:15 – EUR – French Flash Services PMI
08:15 – EUR – French Flash Manufacturing PMI
08:30 – EUR – German Flash Manufacturing PMI
08:30 – EUR – German Flash Services PMI
09:00 – EUR – Flash Manufacturing PMI
09:00 – EUR – Flash Services PMI
09:30 – GBP – Flash Manufacturing PMI
09:30 – GBP – Flash Services PMI
14:45 – USD – Flash Manufacturing PMI
16:00 – GBP – Bank Stress Test Results
16:00 – GBP – BOE Financial Stability Report