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Sterling Cautious Yet Rising

Sterling Cautious Yet Rising

GBP

The UK manufacturing PMI strengthened to 57.3, beating consensus forecasts and also a 3 year high. The figure has grown due to inventory building ahead of Brexit and counteracting supply chain difficulties. UK Services PMI increased to 49.9 from 47.6, just below forecast as coronavirus restrictions undermined activity.

EU Commission President Ursula von der Leyen stated that there was a narrow path to a deal, significant differences remain and fishing talks remained difficult. EU sources have indicated that progress has been made on the level playing field. UK sources remained very cautious, commenting that there was still a major risk of no deal.  The Pound initially strengthened to 30-month highs at 1.3550 against the Dollar before retreating below 1.3500 and the Euro found support above 1.1111.

Sterling opens above 1.3550 against a weaker Dollar and the Euro near 1.1092. The Bank of England policy decision this morning is not expected to see much change  but confidence has been bolstered by the announcement that a mini UK/US trade deal was possible before year-end.

 

USD

US retail sales declined 1.1% in November following a revised 0.1% decline the previous month and below consensus forecasts of a 0.3% decline. Underlying sales declined 0.9% on the month compared with expectations of a slight increase and the control group recorded a 0.5% decline, maintaining near-term economic unease.

The Fed maintained the Fed Funds rate in the 0.00-0.25% range and also made no changes to the bond-buying programme. There was little change in the statement, reiterating that the central bank was committed to using the full range of tools to support the economy. It was also prepared to adjust policy as appropriate if risks emerged to the Fed’s goals. It also adjusted forward guidance slightly with bond purchases continuing at the current rate until there was substantial progress in meeting their targets. There was a small upward revision to GDP forecasts while interest rates were not expected to increase until 2023.

 

EUR

According to flash data, the German PMI manufacturing index strengthened to 58.6 for December from 57.8 previously and above consensus forecasts. The services sector also edged higher to 47.7 from 46.6 and above expectations. French data was notably higher than consensus forecasts and the Euro-zone manufacturing index strengthened to 55.5 from 53.8 previously while the services index strengthened to 47.3 from 41.7. The data was important in underpinning confidence in the Euro-zone with the Dollar remaining under pressure.  Ahead of the Fed’s policy meeting, the Euro posted fresh 2 and a half year highs above 1.2200 before retreating. 

The Dollar edged slightly higher after the statement, but then reversed as Chair Powell maintained a very dovish stance and continued to pledge very strong support to the Greenback. 

As of writing, the Euro currently trades around the 1.2235 mark against its US counterpart. 

 

Data to watch

13:00 – GBP – MPC Official

13:00 – GBP – Monetary Policy Summary 

13:00 – GBP –  Official Bank Rate 

13:00 – GBP – MPC Asset Purchase Facility Votes 

14:30 – USD – Philly Fed Manufacturing Index

14:30 – USD – Unemployment Claims 

16:30 – GBP – MPC Member Broadbent Speaks 

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