Undelivered deal hobbles Sterling
The UK CBI industrial orders index strengthened to a 10-month high -25 in December, up from -40 previously and beating consensus forecasts of -34, although it was still below the long-term average. Export orders also remained well below the long-term average despite a monthly improvement. Bank of England MPC Gertan Vlieghe stated that negative interest rates could help the UK recover and that the risks of being counter-productive were low. In this context, a mix of negative rates and bond purchases would be best.
Brexit negotiations were still deadlocked on Friday despite some optimism from the EU side. Sterling hit selling interest above 1.3550 against the Dollar and the Euro posted net gains to 1.1025. Futures market data recorded a switch back to a modest number of bets for the Pound this week, increasing the risk of liquidation if there is no trade deal (rapid Sterling sell off).
The UK introduced much stricter coronavirus restrictions to combat a new variant of the virus, further undermining the short-term outlook amid further economic damage. As no deal has appeared yet the Pound plunged around the open and continued to fall as there was major disruption at ports as France closed its border for 48 hours. Sterling continued to weaken with lows below 1.3350 against the Dollar while the Euro strengthened to around 1.0965.
The dollar climbed against its major peers on Monday with investors rushing for its relative safety as many countries tightened COVID-19 lockdowns.
There was no agreement on a fiscal support package during Friday with Congressional leaders set to continued meetings during the weekend.
Late on Sunday, Senate majority leader McConnell stated that deal had been reached on a $900bn stimulus Bill. Final votes in the Senate and House will be held on Monday and will need to be signed by President Trump if it is approved. A one-day roll-over bill was approved to avoid a government shutdown.
There were also reports that two former incumbents Summers and Paulson had called on incoming Treasury Secretary Yellen to back a strong dollar. US equity futures held steady, but the dollar secured an element of defensive support.
The German IFO business climate index strengthened to 92.1 for December from 90.9 the previous month and above consensus forecasts of 90.0. There was a small net improvement for the current conditions and expectations components. The IFO reported favourable conditions in the industrial sector, although services were inevitably less buoyant as coronavirus restrictions continued to be tightened.
The data provided an element of Euro support, although the currency was unable to gains further traction with on-going pressure for a correction following strong gains
The Euro dipped lower at the Asian open on disappointment that there had been no progress in Brexit talks and moved lower during Asian trading as the US currency recovered ground, especially with commodity currencies dipping lower. The Euro retreated to lows around 1.2180 amid the more fragile trend in risk appetite, although there was still dollar selling interest on rallies with the Euro recovering to near 1.2200 and choppy trading is likely as liquidity starts to decline ahead of the holiday period.