Brexit delay rumours buoy Pound as Dollar stumbles
Improved global risk appetite provided some support to Sterling yesterday, as a more positive global trade environment would provide support to the UK economy. Political uncertainty continued to hamper Sterling progress as the government attempted to find a cohesive narrative for the resumption of parliamentary Brexit debate.
Sources report that Theresa May was still working on securing assurances from the EU but there was no significant comment from the EU side. Reports also emerged that the withdrawal date could be extended and increased market optimism that parliament would block any ‘no-deal’ Brexit. The Pound held above 1.1110 against the Euro before advancing to 1.1160, but managed to significantly pull back to near 1.2800 against the Dollar. There was evidence of short Sterling covering (buying Pounds to reverse bets against the Pound) and solid Sterling buying when the Pound fell. There is no tier one UK economic data until Friday.
The US Dollar weakened against a basket of currencies as fears over a pause in rate hikes impacted the currency. Even with strong US jobs numbers on Friday investors are now starting to believe that the world’s largest economy is running out of steam. The Dollar remained under pressure with Fed Chair Powell’s comments from last week still having an important effect as markets looked to price in a more dovish Federal Reserve (Fed) stance for this year.
The US ISM non-manufacturing index declined to 57.6 for December from 60.7 previously which was below consensus forecasts of 59.6 and the lowest reading for five months. The orders component remained strong, however, which suggested solid demand and, although most components recorded a significant monthly slowdown, there was some underlying relief surrounding the data after the notably weak manufacturing index released last week.
Atlanta Fed President Bostic stated that he currently saw only one rate increase for 2019 and that the range of uncertainty about global economic events seemed particularly broad at present. The impact of the partial US government shutdown could also become more material if it endures, of which we will find out later today.
There are still fears over the industrial sector as German factory orders continued to decline. The confidence index for the Eurozone weakened to its lowest point since December 2014, however, this was offset by the number coming in above consensus. The same happened for retail sales data but there was still a lack of confidence in the single currency.
Versus the Pound, the Euro was around the 1.1130 mark and versus the Dollar, it was close to the 1.1450 mark. The Dollar fell to two-month lows off the back of very poor stock performance, but the Euro failed to capitalise.
Today sees Swiss unemployment rates, Swiss retail sales, French trade balance figures and the EU’s business climate numbers. The data is not expected to provide any shocks so volatility should be fairly minimal.
Data to watch:
06:45 CHF Unemployment Rate s.a (MoM) (Dec)
07:30 CHF Real Retail Sales (YoY) (Nov)
10:00 EUR Business Climate (Dec)
13:30 USD Trade Balance (Nov)
13:30 CAD International Merchandise Trade (Nov)
20:00 USD Consumer Credit Change (Nov)