Sterling Firm To Begin New Year
Christmas ‘eve saw the announcement of a Brexit agreement which the UK parliament ratified on Dec 30th with a substantial majority, and the EU has provisionally ratified. As the Pound had rallied so strongly just the day before there was limited appetite for fresh Pound buying. There was relief that the UK regulator approved another (the Astra Zeneca/Oxford), easier to distribute, vaccine for use, but there were still reservations over logistics issues and also concerns over the near-term outlook. The discovery of a new variant of coronavirus has increased fears over the need for a further tightening of restrictions which would undermine activity and lead to further upward pressure on the budget deficit.
New Years ‘eve, the last trading day of the year, was initially a bit of a struggle but then the Pound clocked up strong gains, peaking at highs around 1.3680 on the Dollar and 1.1175 on the Euro. Despite near-term corona-fears, Sterling held firm this morning, reaching 1.3700 against the Dollar before a slight correction, and the Euro at opens near 1.1173.
The US registered a sharp increase in the goods trade deficit to $84.8bn for November from $80.4bn the previous month with a monthly surge in imports. Jobless claims declined to 787,000 in the latest reporting week from a revised 806,000 previously which provided an element of relief over near-term labour-market trends.
Overall dollar sentiment remained weak with expectations of negative real interest rates combining with unease over the budget and current account deficits.
The last few days of 2020 saw the Euro continue to gain an element of support from agreement on the UK/EU trade deal. ECB Council member Olli Rehn stated that officials are monitoring the Euro’s strengthening closely although the bank will not be targeting the exchange rate.
The single currency strengthened to 32-month highs just above 1.2300 as the Dollar was subjected to sustained pressure, although there was a sharp correction on the final day of the year.
As of writing, the Euro currently trades around the 1.2265 mark against its US counterpart.
Data to watch
10:30 – GBP – Final Manufacturing PMI
12:00 – All – OPEC-JMMC Meeting