Brexit Fears Punish The Pound
The Pound is under the hammer at the start of the new week after the British Prime Minister, Theresa May stated that she’d prioritise keeping control of immigration in the hands of her government over favoring access to the European Union’s single market once UK leaves the bloc. On the data front, the just out Halifax house price index showed that British house prices rose at the fastest pace in nine months in December.
In the Eurozone, January reading of the Sentix investor confidence index accelerated to its highest level since August 2015. Meanwhile in Germany, trade surplus widened and industrial production advanced for the second consecutive month in November. Across the Atlantic, the Federal Reserve (Fed) is set to publish December figures for its US labour market conditions index, which will be widely read in the wake of Friday’s softer than expected rise in nonfarm payrolls.
Pound Sterling – UK Markets
The Pound has kicked off the week sliding to its weakest level in over two months and dropping to the 1.21 mark against the greenback this morning. The domestic currency weakened following the UK Prime Minister, Theresa May’s comments made overnight which signalled that Britain is likely to quit the Single Market when Brexit occurs, thus highlighting possibilities for a so-called “Hard Brexit”. Traders will now keenly look forward to Supreme Court’s ruling scheduled in mid-January, which will reveal whether May can trigger Article 50 or will require a parliamentary approval to do so. On the macro front, data indicated that UK’s Halifax house prices grew more than expected on a monthly basis in December, its strongest rise since March 2016.
Today UK’s economic calendar remains light. However, it catches speed going ahead in the week. Market participants will keep a close tab on UK’s manufacturing and industrial production data along with trade balance data scheduled this week. The economic releases will be closed with NIESR GDP estimate for December, which has seen three consecutive readings of 0.4%.
US Dollar – US Markets
On Friday, the US Dollar ended higher across the board, reigniting its rally, after data showed fresh signs of strength in the US labour market. The last labour market report under the US President, Barack Obama, showed that although nonfarm payrolls rose less than expected in December, the nation’s wage growth accelerated at its quickest pace since 2009 during the same month. This suggested that the US labour market is reasonably healthy, helping the greenback recoup its earlier losses and strengthened the case for more rate increases in 2017. However, the nation’s unemployment rate rose to 4.7% last month, slightly higher than the November’s 9-year low of 4.6%. Meanwhile, the US trade deficit widened in November, as imports surged. Separately, there were several hawkish comments from Fed officials on Friday that lent further support to the US Dollar.
This morning, the greenback is trading higher against the Pound and the shared currency. Today, market participants will focus on the US labour market conditions index and speeches from two Fed officials.
Euro – European Markets
This morning, the shared currency is trading higher against the Pound and lower against the greenback, after data showed that Germany’s seasonally adjusted trade surplus widened in November, as exports registered its fastest growth in over four years. In addition to this, the country’s current account surplus expanded above market estimates in November. Meanwhile, German industrial output rose for the second consecutive month in November, albeit at a less than expected pace. It added to the signs that the Eurozone’s powerhouse economy saw robust economic activity towards the end of 2016. Moving forward, traders’ will keep a close eye on the Euro region’s unemployment rate data for November, set to release in a short while.
On Friday, data indicated a lackluster print of the Eurozone’s retail sales data which retreated in November, led by a downfall in purchases of non-food items. On the flipside, economic and business confidence strengthened to the highest level in more than five years in December. Additionally, the region’s business climate indicator surged to its highest level since June 2011.
Other Currencies – Highlights
The Australian Dollar is trading on a stronger footing against the greenback this morning, after a report by the Australian Bureau of Statistics revealed that Australia’s building approvals rebounded in November. Building permits are considered an important bellwether for future construction plans in the nation’s residential housing sector. Meanwhile, data released overnight showed that Australia’s AiG performance of construction index contracted for a third straight month in December as activity, new orders and employment all contracted. With only Australia’s retail sales up for release on the domestic macroeconomic front, speeches by several Fed officials including Chairwoman, Janet Yellen’s speech will be of notable interest amongst the Australian Dollar-US Dollar currency pair investors.
Last week, data indicated that Australia’s trade balance swung to a surplus for the first time in 3 years in November, amid stronger exports on the back of rising commodity prices. Separately, in China, Australia’s largest trading partner, foreign currency reserves dropped to its lowest level in about six years in December.