What’s been happening?

Pound Sterling – UK Markets 

The British pound erased the majority of the gains it recorded against the dollar on Wednesday and continued to weaken vs the euro amid persistent Brexit uncertainty and disappointing sentiment data from the UK. Northern Ireland’s Democratic Unionist Party (DUP) leader Arlene Foster told reporters that they would not ask for another referendum but added that they believed there was a better deal than the one offered by British Prime Minister Theresa May. Commenting on the financial analysis of different Brexit scenarios, PM May argued that the negotiated Brexit deal was the best solution and reiterated that the EU had made it clear that was the only deal they would get. On the same note, the EU chief Brexit negotiator Michel Barnier told the European Parliament that negotiations on Brexit were over and it was now time for ratification of the deal.

The GfK on Thursday reported that the Consumer Confidence in the UK dropped to -13 in November from -10 in October with all five measures used to construct the index decreasing in that period. “Against a backdrop of the Chancellor telling everyone that the Brexit deal on the table will make people worse off, this month we’re recording an across the board fall for all measures with concerns over household finances, the general economy and purchase intentions,”  Joe Staton, Client Strategy Director at GfK, said. “The next few weeks are highly unlikely to inject any festive cheer, especially if Theresa May’s Brexit deal doesn’t win backing from MPs.” 

Meanwhile, the data released by the Bank of England showed that the total amount of consumer credit rose to £894 million in October from £852 million in September and net lending to individuals increased to £5 billion to surpass the market expectation of £4.5 billion.

US Dollar – US Markets

The U.S. Bureau of Economic Analysis on Thursday announced that the core Personal Consumption Expenditure (PCE) price index, the Federal Reserve’s preferred gauge of inflation, rose 1.8% on a yearly basis in October to fall short of the analysts’ estimate for a 1.9% growth. Although the initial market reaction to the data weighed on the greenback, the underlying details of the publication, which showed that personal income and personal spending both rose more than expected on a monthly basis in October, helped the currency limit its losses.

Later in the day, in the minutes of its November meeting, the FOMC said that almost all of the participants saw another rate increase in the target range for the federal funds rate was likely to be warranted fairly soon. “Members continued to expect that further gradual increases in the target range for the federal funds rate would be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term,” the FOMC added. Furthermore, the publication revealed that a couple of participants noted that the federal funds rate might currently be near its neutral level and voiced their concerns over the potential negative impacts of further rate hikes on the economic activity and inflation expectations. Nonetheless, expectations for a 25 bps hike in December stayed unchanged above 80% according to the CME Group FedWatch tool. 

Euro – European Markets

The data published by the European Commission on Thursday showed that the business sentiment continued to deteriorate in November with the headline Economic Sentiment Indicator dropping to its lowest level in 11 months at 109.5 from 109.7 in October. Although this decline was less than analysts’ estimates, the shared currency weakened against its rivals. “Employment plans improved strongly in construction and, to a lesser extent, retail trade, while they deteriorated in services and remained broadly stable in industry. Selling price expectations increased markedly in industry and services, while they shrank in retail trade and, to some extent, construction. Consumer price expectations eased somewhat, interrupting the upward trend visible since mid-2018,” the EC said in its publication. On the other hand, the Destatis announced that the unemployment rate in Germany ticked down to 5% in November. Additionally, reports of Deutsche Bank offices being raided in money laundering probe over Panama Papers put some extra weight on the euro’s shoulders.

However, some encouraging developments surrounding the Italian budget crisis helped the shared currency gather strength against both the dollar and the British pound.

Italian Deputy Prime Minister Salvini said that the government was not discussing to cut deficit target by more than 0.2% to suggest that the budget deficit target wouldn’t be lower than 2.2%. Additionally, Italian news outlet Repubblica claimed that the European Union would give Italy more time before the Excessive Deficit Procedure (EDP) measures were taken up. Furthermore, Luis de Guindos, Vice-President of the ECB, said that he was expecting Italy and the European Commission to reach an agreement on the budget. Following these remarks, 10-year Italian T-bond yield extended its decline and continued to close the gap between German 10-year T-bond yield and provided a strong boost to the euro.

What’s coming up? 

UK: The Nationwide Housing Prices will be the only data featured in the UK economic docket on Friday.

US: New York Fed President Williams is scheduled to deliver a speech. Later in the day, the Chicago Fed will publish its PMI report.

EU: The Eurostat will announce the preliminary inflation figures and unemployment data on Friday. Markets expect the annual CPI to fall to 2% in November while seeing the core-CPI unchanged at 1.1% in the same period.