What’s been happening?

Pound Sterling – UK Markets 

The British pound continued to push higher against both the dollar and the euro on Tuesday boosted by the upbeat labour market data. The UK’s Office for National Statistics (ONS) on Tuesday reported that the claimant count rate remained unchanged at 2.8% in November and the unemployment rate ticked down to 4% vs the market expectation of 4.1%. Regarding the wage inflation, “Average weekly earnings for employees in Great Britain in nominal terms increased by 3.3% excluding bonuses, and by 3.4% including bonuses, compared with a year earlier,” the ONS noted in its publication.  

Commenting on British Prime Minister Theresa May’s Brexit Plan B, Germany’s Justice Minister Barley voiced his displeasure by saying that he was disappointed with it and added that the draft Brexit deal would not be changed. On other Brexit-related headlines, Brexit Secretary Stephen Barclay reiterated that going back to a second referendum would “damage the democracy” and explained that they were working on a backstop proposal and that it would in both sides’ interest to have a deal. Additionally, the European Commission’s Vice President Katainen stated that there was little the EU could give Britain in Brexit talks. 

US Dollar – US Markets

The US Dollar Index struggled to extend its rally on Tuesday and closed the day modestly lower as the greenback came under pressure in the second half of the day following dismal macroeconomic data releases from the U.S. The National Association of Realtors reported that existing home sales declined by 6.4% on a monthly basis in December following November’s 2.1% increase. Assessing the data, “The housing market is obviously very sensitive to mortgage rates. Softer sales in December reflected consumer search processes and contract signing activity in previous months when mortgage rates were higher than today. Now, with mortgage rates lower, some revival in home sales is expected going into spring,” Lawrence Yun, the NAR’s chief economist, said.

Meanwhile, several news outlets reported that the Trump administration has cancelled the meeting with two Chinese vice-minister later this month amid a lack of progress in two key trade issues to revive concerns that it will be challenging to reach a trade deal before the deadline of March 1. Major equity indexes in the U.S. suffered heavy losses on this development and the Treasury bond yields fell sharply on safe-haven flow to further weigh on the greenback.  

Euro – European Markets

The shared currency was virtually unchanged vs the dollar for the second straight day while falling to its weakest level in more than two months against the pound sterling. Ahead of Thursday’s critical ECB meeting, investors seem to be staying away from the euro as the bank is expected to recognize the economic slowdown in the area and adopt a cautious tone. 

Earlier in the day, the monthly report published by the Zentrum für Europäische Wirtschaftsforschung (ZEW) showed that Economic Sentiment in Germany improved to -15 in January from -17.5 in November and came in better than the market expectation of -18.4. However, further details of the publication revealed that the Economic Sentiment in the euro area continued to deteriorate and the Current Situation in Germany fell sharply to 27.6 from 45.3 to miss the analysts’ estimate of 43.5 by a wide margin.  

What’s coming up? 

UK: The Confederation of British Industry will publish its Industrial Trends Survey on Wednesday.  

US: The Federal Reserve Bank of Richmond will release its Manufacturing Survey.   

EU: The only data featured in the European economic docket will be the European Commission’s Consumer Confidence Index on Wednesday.