Sterling bolstered by Brexit optimism
UK high street lending data was close to expectations while retailers remained cautious with a CBI survey reading of 0 from -13 the previous month.
There was further evidence of increased parliamentary support of the government’s Withdrawal Agreement if the Northern Ireland backstop is amended or withdrawn. There was also further speculation of increased support for Amendments to Tuesday’s government Bill which would block a ‘no-deal’ Brexit. With some signs that the EU would be willing to shift its position on a clear signal from the UK, Sterling held a firm tone.
There Was also evidence of reduced market fear with implied volatilities declining to fresh two-month lows. The UK currency pushed to 11-week highs just above 1.3200 against the Dollar. Sterling was unable to make further headway this morning following weekend comments from Irish Foreign Minister Coveney that the Irish backstop had to remain and the UK currency was held just below 1.3200 against the Dollar while the Euro found further support below 1.1550 as markets monitored political rhetoric ahead of tomorrow’s House of Commons votes.
The US durable goods orders and new home sales releases were cancelled due to the government shutdown and there were also reports that New York’s LaGuardia airport had suspended flights due to staff shortages.
Markets were uneasy over the negative economic impact with missing data also liable to increase underlying Federal Reserve policy caution.
Overall, there was a lack of convincing evidence for the US Dollar decline, although there were reports that the Federal Reserve would stop shrinking the balance sheet earlier than expected which did help undermine the currency. There was also an element of caution ahead of this week’s FOMC policy meeting and the Greenback strengthened to the 1.1400 area against the Euro. The Dollar remained on the defensive this morning with the Euro holding just above 1.1400.
Friday saw much of the same trends from the previous week. Data out of Europe was weak again. German IFO index came in at its lowest level since March 2010, below consensus at 99.1 for January. European Central Bank (ECB) Member Villeroy was quick to say that the Eurozone was at no risk of recession and that the Euro was resilient despite the likelihood of GDP forecasts being downgraded for March.
Versus the Dollar, the Euro seemed to buck the weekly trend on Friday by rallying to just above the 1.1400 level despite the weak data out of Germany. However, many are attributing this to the strong Dollar bearish sentiment.
Little data is due out today, but all eyes and ears will be on ECB President Draghi’s speech as well as Governor Carney’s speech just after. Having said this, tomorrow’s events in the UK parliament will overshadow the beginning of the week.
Data to watch:
13:30 USD Chicago Fed National Activity Index (Dec)
14:00 EUR ECB President Draghi’s Speech
14:30 GBP BoE’s Governor Carney speech
22:45 NZD Exports (Dec)
22:45 NZD Trade Balance (YoY) (Dec)
22:45 NZD Imports (Dec)
22:45 NZD Trade Balance (MoM) (Dec)