Risk aversion feeds Dollar
The Pound rose sharply ahead of the New York market open and the move through the 1.1765 Euro level triggered stop-loss Euro selling. Sterling pushed above 1.3200 on the Dollar, but the move faltered and reversed sharply to near 1.3100 before the US came online. A Downing St proclamation that no-deal Brexit prep would halt added to support for the Pound.
The Brexit Withdrawal Bill returned to the House of Commons, and given the overwhelming government majority amendments are unlikely to meet approval, therefore curbing potential impact. Developments in the Middle East will contribute to choppy trading conditions and Brexit will be in focus as Boris Johnson meets with EU Commission President von der Leyen today.
The overall US trade deficit declined to a 3-year low of $43.1bn for November from $46.9bn the previous month as exports made headway. The deficit for the first 11 months of the year declined slightly to $563bn from $566.9bn the previous year. The ISM non-manufacturing index strengthened to 55.0 for December from 53.9 previously and above consensus forecasts. There was a sharp rebound in business activity, although new orders increased at a slower rate and unfilled orders continued to decline for the month. The employment and price indices were little changed from the previous month. The headline data helped underpin the dollar even though some of the components were less convincing.
There were no comments from Federal Reserve officials during the day and markets remained confident that there would be no changes in interest rates this quarter.
The Eurozone CPI inflation rate increased to 1.3% for December from 1.0% previously which was in line with consensus forecasts. The core rate remained at 1.3% compared with expectations of a slight increase to 1.4%. Retail sales data beat market expectations with a 1.0% monthly increase and annual gain of 2.2%. The data failed to support the Euro with the inflation rate not seen as high enough to divert the ECB away from its very expansionary monetary policy.
After failing to break 1.1200 on Monday, the Euro lost ground with a fresh dip to 1.1135 yesterday, German factory orders declined 1.3%, maintaining concerns over the outlook. As of writing the Euro has again dipped to the 1.1135 figure.
Data to watch
13:15 – USD – ADP Non-Farm Employment Change
13:15 – USD – President Trump Speaks
15:30 – USD – Crude Oil Inventories