What’s been happening?

Pound Sterling – UK Markets 

Following a sharp drop to its weakest level in more than 18 months against the dollar, the pound sterling staged a modest recovery on Thursday. However, this move seemed to be a correction of Wednesday’s fall rather than a fundamentally driven rebound and is unlikely to last as investors continue to wait for Brexit developments. Vs the euro, the pound sterling stayed relatively quiet throughout the day. While speaking to reporters, the European Commission spokeswoman, Mina Andreeva, reiterated that the Brexit deal on the table the “only deal possible” and added deal wouldn’t be re-negotiated. Moreover, following his meeting with Prime Minister Theresa May, Northern Irish Democratic Unionist Party’s (DUP) deputy leader Nigel Dodds in a statement said that the Party's principled objections to the EU Withdrawal agreement remained and added that he pressed PM to deliver on her commitments to deal with the backstop. 

Earlier in the day, Reuters reported that the British Chambers of Commerce (BCC) said that the growth in the service sector’s business activity slumped to its weakest pace in two years. Commenting on the report, “The UK economy is in stasis,” BCC director general Adam Marshall said. “With little clarity on the trading conditions they’ll face in just two months’ time, companies are understandably holding back on spending and making big decisions about their futures.”

Meanwhile, the IHS Markit announced that the Construction PMI in December came in at 52.8 to miss the market expectation of 52.9. “UK construction firms signalled a slowdown in housing and commercial activity growth during December, which more than offset a strong performance for civil engineering at the end of 2018,” noted Tim Moore, Economics Associate Director at the IHS Markit.

US Dollar – US Markets

The employment report published by the ADP on Thursday showed that the private sector employment in the U.S. increased by 271K from November to December and surpassed the market expectation of 178K. Assessing the data, “Businesses continue to add aggressively to their payrolls despite the stock market slump and the trade war. Favourable December weather also helped lift the job market. At the current pace of job growth, low unemployment will get even lower,” said Mark Zandi, chief economist of Moody’s Analytics.

Despite the upbeat labour market data, however, the dollar weakened against its peers in the second half of the day as the disappointing ISM Manufacturing PMI data, which fell to 54.1 in December from 59.3 in November and missed the analysts’ forecast of 58 by a wide margin, revived concerns over an economic slowdown in 2019. Additionally, the 10-year Treasury bond yield lost more than 4% on the day to increase the selling pressure on the currency. 

In an interview with Bloomberg, Dallas Fed President argued that financial conditions tightened and stated that he would prefer the Fed to take no further rate actions until the issues were resolved.         

Euro – European Markets

According to the European Central Bank, the total amount of private loans in the euro area grew by 3.3% on a yearly basis in November to meet the analysts’ forecasts and the M3 money supply increased by 3.7% in the same period. Nevertheless, both of these figures were largely ignored by the participants. In an interview with the Passauer Neue Presse newspaper, German Economy Minister Peter Altmaier said that both Brexit and a shortage of skilled labour was posing significant risks to the economy and added: “The growth effects are difficult to quantify, but I expect that a functioning influx of migrants to the labour market could add multiple tenths of a percentage point of additional growth in Germany.”

What’s coming up? 

UK: The Nationwide Housing Prices will be the only data release from the UK on Friday. 

US: December NFP report will highlight the U.S. economic docket. The publication will include the unemployment rate, average hourly earnings, and the labour force participation rate as well. Furthermore, both the ISM and the IHS Markit will announce the non-manufacturing PMI figures. Later in the day, FOMC Chairman Powell and members Barkin and Bullard will be delivering speeches. 

EU: The Destatis will announce German unemployment figures and the Eurostat will release December CPI and PPI data on Friday. The IHS Markit is also scheduled to publish Services PMI reports from the euro area and Germany.