What’s been happening?

Pound Sterling – UK Markets 

The pound sterling’s two-day recovery came to a halt on Friday and the currency erased the majority of the gains it recorded vs the dollar on Wednesday and Thursday while staying relatively quiet against the euro. 

Speaking in a press conference following her meeting with Jean-Claude Juncker, the president of the European Commission, in Brussels, British Prime Minister Theresa May said that further clarifications from the EU on the Irish backstop were “in fact possible,” and added that the EU was still firmly committed to having the future ties in place to avoid a backstop. Earlier in the day, Juncker in an official statement announced that they would be releasing the details of their no-deal Brexit preparations on December 19. “Mrs May is fighting hard and bravely but we haven't seen results. We don't want the UK to feel there can be any form of renegotiation whatsoever. We can add some clarifications but there will be no renegotiations," Juncker stated.

US Dollar – US Markets

According to the monthly report published by the U.S. Census Bureau, retails sales increased by 0.2% on a monthly basis in November to match analysts’ estimates. Other data from the U.S. revealed that following a 0.2% contraction in October, industrial production rose 0.6% in November with the capacity utilization improving to 78.5% from 78.1%. 

Meanwhile, the IHS Markit’s flash Manufacturing PMI and Services PMI retreated to 53.9 and 53.4, respectively, in December. Commenting on the data, “The flash PMIs bring signs of the US economy ending 2018 on a softer note. With business activity expanding at the slowest rate for one and a half years, the surveys indicate that the pace of economic growth has faded to 2.0% in December, albeit closer to 2.5% for the fourth quarter as a whole,” Chris Williamson, Chief Business Economist at IHS Markit, noted.

Despite the mixed macroeconomic data releases, however, the US Dollar Index, which tracks the greenback’s value against a basket of six major currencies, rose to its highest level of the year ahead of the Fed’s last meeting of the year. 

Euro – European Markets

The shared currency struggled to find demand on Friday as investors continued to asses ECB President Draghi’s remarks and the dovish shift in his tone. The data published by the Eurostat revealed that labour costs in the third quarter increased by 2.5% in the third quarter following the second quarter’s 2.2% reading. 

On the other hand, the IHS Markit announced that both the flash Manufacturing and Services PMI continued to fall in December suggesting a further loss of momentum in the private sector business activity. “The Eurozone economy saw a disappointing end to 2018, with growth slowing to the weakest for four years. While some of the slowdown reflected disruptions to business and travel arising from the ‘yellow vest’ protests in France, the weaker picture also reflects growing evidence that the underlying rate of economic growth has slowed across the euro area as a whole,” said Chris Williamson, Chief Business Economist at IHS Markit. Similarly, the Manufacturing PMI in Germany edged down to 51.5 from 51.8 while the Services PMI fell to 52.5 from 53.3. 

What’s coming up? 

UK: Investors are likely to stay focused on the political headlines amid a lack of macroeconomic data releases from the UK. 

US: NY Fed’s Empire State Manufacturing Index and the NAHB Housing Market Index will be featured in the U.S. economic docket. 

EU: The Eurostat will release trade balance and inflation data from the euro area on Monday. Investors expect the annual core CPI to stay unchanged at 1%.