The Euro Reverses Gains
What’s been happening?
Pound Sterling – UK Markets
The British pound weakened against the dollar on Friday while recovering Thursday’s losses vs the euro, pointing to a mixed market valuation ahead of the critical Brexit vote in the Parliament in the second week of December.
Speaking to reporters on the sidelines of the G20 summit on Friday, British Prime Minister Theresa May said that Britain would be more divided if the Parliament were to vote down her deal and added that a divided country wouldn’t prosper. Commenting on the political scene in the UK, May stated that the opposition Labour party was playing politics and argued that they were trying to frustrate the government’s attempt to deliver Brexit. Meanwhile, “MPs ought to make their own decision on the vote but they need to compare the existing deal against the alternatives. A no-deal Brexit would not be a disaster,” said British Trade Secretary Liam Fox.
The only data from the UK on Friday showed that the Nationwide Housing Prices rose 1.9% on a yearly basis in November to surpass the analysts’ estimate of 1.7% but was largely ignored by the market participants.
US Dollar – US Markets
The US Dollar Index gained traction in the second half of the day and recorded İts highest weekly close in more than five months boosted by an upbeat PMI data and the broad-based selling pressure surrounding the major European currencies.
The ISM-Chicago on Friday announced that the MNI Chicago Business Barometer advanced to its highest level in 11 months at 66.4 with new orders increasing at its strongest pace in more than four years. “Business activity recorded its most impressive performance so far this year in November, ending a three-month run of declines. Although broad-based, with increases across all five of the Barometer’s subcomponents, resurgent orders, solid output and higher unfinished orders were the month’s key drivers,” the ISM said in its publication.
Earlier in the day, Minneapolis Fed President Neel Kashkari told CNBC argued that the Fed could cause a recession if rates were raised “dramatically,” and said that they were paying a very close attention to the data because there was a lot of uncertainty of around where the neutral rate is. Finally, following the meeting between US President Trump and his Chinese counterpart Xi Jinping, news outlets reported that leaders agreed to pause additional tariffs for the next 90 days and the U.S. would keep current tariffs unchanged at 10% in 2019.
Euro – European Markets
The euro suffered losses against its major rivals on Friday as the disappointing macroeconomic data releases forced the currency to erase the gains it recorded on Thursday. According to the data published by the Eurostat, inflation in the euro area as measured by the Consumer Price Index (PCI) rose 2% on a yearly basis in November following October’s 2.2% reading. Other details of the report revealed that the core-CPI, which excludes volatile food and energy prices, came in at 1% in the same period to fall short of the market forecast of 1.1%. Additionally, the unemployment rate stayed unchanged at 8.1% in October, missing analysts’ estimate of 8%.
Meanwhile, Italy’s National Institute of Statistics reported that the real GDP in the third quarter contracted by 0.1% on a quarterly basis after staying unchanged in the second quarter, forcing Italian T-bond yields to rise and further weigh on the shared currency.
What’s coming up?
UK: The IHS Markit will release November Manufacturing PMI data on Monday.
US: Both the IHS Markit and the ISM will publish PMI reports for the manufacturing sector. FOMC member Brainard is also scheduled to deliver a speech later in the day.
EU: The European economic docket will feature the IHS Markit’s Manufacturing PMI data for the euro area, Germany, and Italy. Furthermore, the Sentix GmbH will announce December consumer confidence data for the eurozone.