Sterling Gaining Despite Uncertainty
Sterling opened lower yesterday morning after the latest jobs-market release showed payrolls declined in November. In the early hours the Pound dipped to lows below 1.3300 on the Dollar and 1.0930 on the Euro amid a lack of positive Brexit developments. Hopes that Brexit trade deal negotiations were making progress fueled a gradual reversal but the relatively downbeat tone of Boris Johnson and Brussels’ lack of rhetoric suggested that serious talks were making headway.
Reports emerged before the European market close that level playing field talks had eased concerns within Conservative MPs and that a deal was now more likely; market optimism for a deal increased, Sterling gained despite high uncertainty.
Today sees the latest PMI business confidence data, released ahead of tomorrow’s Bank of England policy decision. The UK inflation rate declined to 0.3% for November from 0.7% and below expectations of 0.6% with the core rate declining to 1.1% from 1.5%, but political developments dominated.
The Pound opens today near 1.3400 against a fragile Dollar and 1.1060 against the Euro as Brexit hopes continue to bolster confidence.
The US New York Empire manufacturing index edged lower to 4.9 for December from 6.3 previously and slightly below consensus forecasts of 6.9. There was a marginal increase in new orders while unfilled orders declined at a slower pace. Employment grew at a faster pace on the month and companies were slightly more optimistic over the outlook. Business surveys will continue to be watched closely in the short term and services will be more important than manufacturing.
Industrial production increased 0.4% for November with an increase of 0.8% for manufacturing output compared with market expectations of a 0.3% increase.
The US currency was seen as vulnerable on seasonal ground with the dollar tending to lose ground over the second half of December.
There was caution ahead of important events on Wednesday with the Euro-zone PMI business confidence data and Federal Reserve policy meeting. Markets will be watching Fed guidance amid speculation that there could be a shift in the bond-buying programme to increase purchases of longer-term bonds to cap yields.
The dollar overall was unable to make headway with fresh buying in commodity currencies and the Euro edged above 1.2150, although momentum was lacking. The dollar remained on the defensive in early Europe on Wednesday as risk appetite held firm with the Euro above 1.2150 and significant volatility likely later in the day.
Whilst the Euro has gained some positive traction, it is yet to exit its recent trading range of 1.2060 to 1.2178. Nevertheless, the single currency against the Dollar is trading near 2 and a half year highs.
US Congress leaders vowed to break the long-standing impasse on its coronavirus relief package, inviting selling pressure for the safe haven US currency. The stimulus package, if approved, would be bearish for the Dollar and improve prospects for additional upside momentum for the Euro, keeping it better bid in the run-up to the German and Eurozone PMI data, scheduled for release later today.
As of writing, the single currency currently trades around the 1.2175 mark against its US counterpart.
Data to watch
09:15 – EUR – French Flash Services PMI
09:15 – EUR – French Flash Manufacturing PMI
09:30 – EUR – German Flash Manufacturing PMI
09:30 – EUR – German Flash Services PMI
10:00 – EUR – Flash Manufacturing PMI
10:00 – EUR – Flash Services PMI
10:30 – GBP – Flash Manufacturing PMI
10:30 – GBP – Flash Services PMI
14:30 – USD – Core Retail Sales
14:30 – USD – Retail Sales
15:45 – USD – Flash Manufacturing PMI
15:45 – USD – Flash Services PMI
20:00 – USD – FOMC Economic Projections
20:00 – USD – FOMC Statement
20:00 – USD – Federal Funds Rate
20:30 – USD – FOMC Press Conference