British pound under pressure
What’s been happening?
Pound Sterling – UK Markets
The British pound weakened against both the dollar and the euro on Monday as investors continued to stay away from the currency amid the possibility of the Parliament voting down the Brexit agreement. According to Sky News, British Interior Minister Javid said that there was no chance of pulling the December 11 vote on Prime Minister Theresa May’s Brexit deal and added that there was no plan B and they would be spending the next few days trying to win the support of MPs. Meanwhile, in an interview with ITV, "People are talking about a second vote when we haven't even delivered on the first vote... let's deliver on the first vote," Theresa May said. Later in the day, the government announced that it would not publish the full legal advice on the Brexit deal, to which Britain’s main opposition Labour Party responded by sending a letter to John Bercow, Speaker of the House of Commons, asking to consider launching contempt proceedings. “I have considered the matter carefully and I am satisfied that there is an arguable case that a contempt has been committed,” John Bercow told the parliament and added that the issue will be discussed for first thing on Tuesday.
The data released by the IHS Markit showed a moderate improvement in the manufacturing sector with the final PMI coming in at 53.1 to beat the analysts’ estimate of 51.8. Commenting on the data, “Although November saw the headline PMI regain some lost ground and trends in output, new orders and employment picked up slightly from a weak October, growth is still among the weakest seen over the
past two-and-a-half years,” Rob Dobson, Director at IHS Markit, said.
US Dollar – US Markets
The dollar, which has been finding demand as a safer alternative in the past couple of months, suffered losses against its peers during the first half of the day on Monday as the improved market sentiment following the 90-day trade truce between the U.S. and China allowed investors to focus on risk-sensitive currencies. Nevertheless, the US Dollar Index recovered a large portion of its daily losses boosted by the upbeat PMI data and finished the day modestly lower.
The IHS Markit on Monday announced that the final reading of November Manufacturing PMI edged down to 55.3 to miss the market expectation of 55.4 by a small margin. “Despite the headline PMI slipping to a three-month low, November saw manufacturers enjoy another encouragingly solid month of improving business conditions,” Chris Williamson, Chief Business Economist at IHS Markit
noted. On the other hand, the ISM’s Manufacturing PMI improved to 59.3 in the same period from 57.7 with new orders, production, and employment sub-indexes expanding at a faster rate than they did in October.
Euro – European Markets
The shared currency recorded modest gains against the dollar on Monday while rising to its highest level vs the British pound in two weeks. However, disappointing macroeconomic data releases and the uncertainty surrounding the conflict between the EU and Italy over the budget proposal is likely to limit any further potential gains of the currency.
While speaking on Bloomberg TV, the European Commission vice president, Valdis Dombrovskis, said that they needed to see concrete steps taken by Italy on the budget and further elaborated by explaining that Italy’s budget still needed substantial adjustments and the Commission was open for dialogue. Earlier in the day, news outlet Il Messaggero claimed that Prime Minister Giuseppe Conte was preparing for a budget deficit of 1.9% to 2.0% and Deputy PMs, Luigi Di Maio and Matteo Salvini, were ready to accept the new target.
At 51.8, the IHS Markit’s Eurozone Manufacturing PMI recorded its lowest reading in more than two years in November. “November’s PMI data underscore the extent to which manufacturing conditions have become more challenging, indicating that production could act as a drag on the eurozone economy in the fourth quarter,” Chris Williamson, Chief Business Economist at IHS Markit, noted. “Manufacturers reported that demand is now falling in Germany, France and Italy, while only modest growth was recorded in Spain.” Additionally, Germany’s Manufacturing PMI slumped to its lowest level in 31 months at 51.8 in November from 52.2 in October with new orders sub-index contracting at its fastest pace since late 2014.
What’s coming up?
UK: The IHS Markit will release November Construction PMI data on Tuesday. Later in the day, Bank of England Governor Carney is scheduled to deliver a speech.
US: The economic docket in the U.S. will feature ISM-NY Business Conditions Index and IBD/TIPP Economic Optimism Index. New York Fed President Williams will be speaking at an event later in the evening.
EU: The Eurostat will publish the eurozone PPI data on Tuesday.