What’s been happening?

Pound Sterling – UK Markets 

Amid a lack of developments that hint at the Parliament supporting British Prime Minister Theresa May’s Brexit deal, the pound sterling stayed under pressure on Tuesday and weakened to its lowest level in nearly two weeks against the dollar while suffering modest losses vs the euro. In an interview with BBC Radio, one of PM May's closest government supporters and the former defence secretary, Sir Michael Fallon, said that the proposed EU agreement was the “worst of all worlds.” Meanwhile, Cabinet secretary David Lidington told reporters that the EU made its position very clear and argued that there was no point in trying to reopen Brexit talks. “The Parliament has a binary choice between accepting the deal or voting it down,” Lidington added. “It is wishful thinking that EU will offer another plan if parliament vote fails.”

The latest data published by the CBI on Tuesday, Distributive Trades Survey, came in at 19% in November to beat the analysts’ estimate of 10%. “36% of respondents reported that sales volumes were up in the year to November, while 17% said they were down, giving a balance of 19%,” the CBI explained in its publication and elaborated: “Momentum in the retail sector is likely to remain relatively subdued going forward, as firms continue to grapple with weak household income growth and structural changes posed by digital disruption. For more detail on our broader view of the economic outlook, see our June economic forecast.”  

US Dollar – US Markets

The US Dollar Index extended its rally on Tuesday and rose to its highest level in two weeks boosted by data and hawkish remarks from Fed officials. In his prepared remarks, Richard Clarida, the Federal Reserve’s Vice Chairman, said that he would back more rate hikes than expected if inflation surprised to the upside and added that economic fundamentals were robust. Additionally, “Positive overall economy still leaves pockets of distress,” Atlanta Fed President Raphael Bostic argued. 

The Conference Board announced that the Consumer Confidence Index in the U.S. edged down to 135.7 in November from 137.9 in October. However, the underlying details of the publication showed that the consumer sentiment stayed strong into the holiday season. “Consumers’ assessment of current conditions increased slightly, with job growth the main driver of improvement. Expectations, on the other hand, weakened somewhat in November, primarily due to a less optimistic view of future business conditions and personal income prospects. Overall, consumers are still quite confident that economic growth will continue at a solid pace into early 2019. However, if expectations soften further in the coming months, the pace of growth is likely to begin moderating,” explained Lynn Franco, Senior Director of Economic Indicators at The Conference Board.

Euro – European Markets

The euro dropped to its worst level against the dollar since November 15 as the uncertainty surrounding the Italian budget crisis and concerns over the possibility of Trump administration announcing tariffs on European cars made it difficult for the shared currency to find demand. 

Pierre Moscovici, European Commissioner for Economic and Financial Affairs, on Tuesday repeated that the Italian budget proposal was posing risks for the economy and the savers and announced that further talks were expected to take place during the G20 meeting later this week. Meanwhile, Italy's ruling party La Lega's economic adviser, Armando Siri, told reporters that they were considering to reduce the budget deficit to 2.2% or 2.3%, contradicting with yesterday’s Reuters report that claimed Italy was looking to bring the deficit target down to 2%. Although later in the day Italian Deputy Prime Minister Matteo Salvini stated that they were ready to do all they can to avoid the EU’s disciplinary action and was hoping for equal openness from Brussels, these comments failed to help the shared currency retrace its drop. 

What’s coming up? 

UK: The Bank of England will publish the results of the bank stress test alongside its Financial Stability Report on Wednesday.

US: The U.S. Bureau of Economic Analysis will release the Q3 GDP growth (preliminary) figures, which is expected to stay unchanged at 3.5% on an annual basis. Goods trade balance, new home sales, Richmond Fed Manufacturing Index and personal consumption expenditures will also be featured in the economic docket.

EU: The European Central Bank will announce private loans and M3 money supply data on Wednesday. The GfK is also scheduled to release the Germany Consumer Sentiment report.