What’s been happening?

Pound Sterling – UK Markets 

The British pound stayed relatively quiet on Tuesday and recorded modest gains against the buck while weakening slightly vs the euro. Speaking to reporters in the evening, British Prime Minister Theresa May’s spokesman said that the cabinet of senior ministers agreed that delivering the PM’s Brexit was the top priority and the best no-deal mitigation. The spokesman further stated that the cabinet agreed that no-deal preparations needed to be ramped up. “Citizens should also prepare for a no-deal Brexit.

Further detailed advice for citizens on no-deal will be issued in the coming weeks,” the spokesman added.

Meanwhile, in an interview with Sky News, British Brexit Secretary Barclay explained that preparing for a no-deal was an “operational priority” and that they were still aiming to get a Brexit deal with the EU. 

US Dollar – US Markets

After spending the first half of the day under pressure, the dollar recovered a large part of its losses against its major rivals on the back of upbeat data and the US Dollar Index finished the day virtually unchanged. The report published jointly by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development on Tuesday showed that housing starts rose 3.2% in November following October’s 1.6% decline. Similarly, building permits increased by 5% in the same period after contracting 0.6% in the previous month.

Moreover, White House spokeswoman Sarah Sanders told Fox News that the Trump administration was looking to alternative ways to fund the border wall in order to avoid a government shutdown to provide an additional boost to the greenback. “There are certainly a number of different funding sources that we’ve identified that we can use, that we can couple with money that would be given through congressional appropriations that would help us get to that $5 billion that the president needs in order to protect our border,” Sanders stated.  

Euro – European Markets

The shared currency gained traction on Tuesday as Italian budget crisis came to an end with the European Commission accepting the 2019 budget deficit target of 2.04%. Although the euro was able to record gains against both the dollar and the pound sterling, today’s data, once again, highlighted the economic slowdown in the area, which is likely to keep the currency’s gains limited.

Tuesday’s data showed that the headline German Ifo business climate index fell to 101.0 in December from 102 in November and fell short of the experts’ forecast of 101.8. Additionally, the expectations index slumped to 97.3 from 98.7 and the current assessment index dropped to 104.7 from 105.5. Commenting on the data, Ifo economic Klaus Wholrabe said that the Germany economy continued to cool down but there was no recession in sight yet. “The uncertainty has increased further, Brexit is at the top of the agenda. Export expectations have reached the lowest level since November 2016 and the private consumption could be better-given increases in income and employment,” Wholrabe added. 

What’s coming up? 

UK: The UK’s Office for National Statistics will release its November inflation report on Wednesday, which will include the Consumer Price Index (CPI), Producer Price Index (PPI) and Retail Price Index (RPI). 

US: Existing home sales will be the only data featured in the U.S. economic docket on Wednesday. In the evening, the Fed will announce its interest rate decision and publish its monetary policy statement alongside with updated economic projections. FOMC chairman Powell will be later appearing at a press conference to deliver his policy statement and respond to questions from the press. 

EU: Germany’s Producer Price Index and the euro area construction output data will be released on Wednesday.