British Pound Extends Rally on Brexit Optimism
What’s been happening?
Pound Sterling – UK Markets
Despite a lack of fundamental drivers and fresh political developments in the UK, hopes of the EU delaying Brexit until next year to give more time to the UK to deal with the political situation allowed the British pound to continue to gather strength against both the dollar and the euro on Thursday. While speaking to reporters, a spokeswoman for British Prime Minister Theresa May said that PM was planning to have calls with EU leaders in coming days and announced that the PM has cancelled her trip to Davos to focus on Brexit.
In a speech delivered on Thursday, Labour Part leader Jeremy Corbyn argued that PM May would send the UK into a no-deal Brexit and added that they would table more confidence votes in the government if they saw it necessary while reiterating that a general election was still the best outcome. On the other hand, European Union Chief Brexit Negotiator, Michel Barnier, said that the deal they offered was balanced and it respected the red lines of the UK. “If the UK’s red lines move, we will move immediately,” Barnier added.
US Dollar – US Markets
The US Dollar Index, which tracks the greenback’s value against a basket of six major currencies, preserved its weekly gains on Thursday supported by upbeat macroeconomic data releases. The U.S. Bureau of Labor Statistics on Thursday reported that weekly initial jobless claims decreased by 3,000 to 213,000 in the week ending January 11. Additionally, the Federal Reserve Bank of Philadelphia’s Manufacturing Survey revealed that the business activity in the region’s manufacturing expanded at a more robust pace than expected with the headline general business conditions index improving to 17 in January to beat the market expectation of 10. “The general activity and new orders indicators increased from their readings last month, while the indicators for shipments and employment decreased,” the Philly Fed noted in its press release.
Later in the day, the Wall Street Journal reported that the U.S. officials were weighing the option of lifting the tariffs on Chinese imports in order to calm the markets down and give China incentive to make further concessions in the trade conflict. However, the market reaction to this headline was relatively short-lived as a spokesman for the U.S. Treasury denied the WSJ’s claims by saying: "Neither Secretary Mnuchin nor Ambassador Lighthizer have made any recommendations to anyone with respect to tariffs or other parts of the negotiation with China.”
Euro – European Markets
The shared currency continues to have a difficult time attracting investors and weakens against its major rivals. The monthly report published by the Eurostat on Thursday showed that the construction output in the euro area declined by 0.09% in November. Other data revealed that the CPI stayed unchanged at 1.6% on a yearly basis in December to match analysts’ estimates and the core CPI, which excludes volatile food and energy prices, remained steady at 1%.
Earlier in the day, the European Central Bank's (ECB) executive board member Sabine Lautenschlaeger said that the economy was still in the environment projected by the central bank and added that they would wait for projections in March before changing the view on rate hikes. “Views on rate hikes are very much data-driven and have to think where to start with a rise in rates. ECB has different key rates, not just one,” Lautenschlaeger explained.
What’s coming up?
UK: The UK’s Office for National Statistics will be publishing the retail sales report on Friday.
US: Industrial production and capacity utilization will be featured in the U.S. economic docket. The University of Michigan will also release its preliminary Consumer Sentiment report.
EU: The European Central Bank will release its November current account figures.