Brexit Transition Deal Needed Says IMF
Sterling strengthened against the US Dollar and the Euro as Prime Minister Theresa May and US President Donald Trump agreed on the importance of swift post-Brexit bilateral trade deal, making investors and traders more optimistic. A report by the International Monetary Fund (IMF) regarding the UK’s economy said that the timeframe of Brexit negotiations is ambitious, with the list of tasks remaining to be accomplished being very long. The IMF stressed that an agreement on a transition period would reduce the uncertainty that troubles households and businesses in the UK.
The Governor of the Bank of England (BoE) will appear later in the day before the Treasury Select Committee to answer questions regarding the subject of financial stability. In the US, it’s only a matter of hours before the House of Representatives votes, for a second time, in favour of the tax reform bill. The Senate passed the bill yesterday which means that Donald Trump may be able to sign it into law before Christmas day.
Pound Sterling – UK Markets
Today, the Pound gained ground against the US Dollar with the exchange rate set at $1.34. Sterling also edged up against the Euro with the exchange rate set at €1.13.
The BoE released their agents’ summary of business conditions for the fourth quarter of 2017. The report noted that the manufacturing sector was supported by the fall of the Pound and pointed to a modest investment growth in the near-term. It is also stated that the UK’s economic activity remained broadly stable. According to the BoE agents’ summary, wage growth is expected to be stronger in 2018 and won’t be affected by the ongoing Brexit negotiations.
Christine Lagarde, the head of the IMF, is in London today to present the Fund’s annual health check of the British economy. Lagarde has publicly opposed Brexit saying that it would cause severe problems to the country’s economy. The IMF’s report noted that the UK’s economy will grow by 1.5% in 2018 and that Brexit is weighing on domestic demand. The Fund’s economists also believe that reducing the budget deficit is critical in order to be prepared against future shocks.
US Dollar – US Markets
The US Dollar inched lower against the Euro with the exchange rate set at €0.84. The US Dollar Index (DXY), which measures the strength of the Dollar against six major currencies, remained stable at 93.47.
Yesterday, the US Senate voted in favour of the Tax Cut and Reform Bill. The House of Representatives is expected to give the final approval to the tax reform bill today and send it to President Donald Trump to sign it into law. The House will have a second vote after the Senate confirmed that three provisions in the bill don’t comply with the Senate’s procedural measure known as Byrd rule. The second voting procedure is not expected to differentiate from the first, regarding the outcome.
Republicans said that tax cuts included in the bill are going to spark investments, hiring or wage growth. Democrats described the bill as a “giveaway” to businesses while the middle class is going to have to deal with an additional tax burden. The tax reform bill reduces the corporate tax to 21%, which according to a Reuters source, will boost overall earnings for S&P500 companies by 9.1%.
Euro – European Markets
The Euro inched higher against the US Dollar with the exchange rate set at $1.18. The most important data release of the day was the Eurozone’s current account figure.
According to the European Central Bank (ECB), the Euro-bloc’s current account surplus declined in October, reaching €30.8bn. The recorded figure missed expectations as economists had forecast that the surplus would stand at €33.4bn. The reason for the drop is that net exports of goods fell slightly. Currently, the current account surplus is equal to the 3.2% of Eurozone’s GDP in the first ten months of 2017.
In Germany, Destatis reported that producer prices increased by 2.5% in November, missing analysts’ expectations. Economists were expecting that producer prices would increase by 2.6%, on an annualised basis, but instead the price growth rate hit the lowest level in the last four months. Price of durable consumer goods rose by 1.2% and energy prices advanced 3%.
Other Currencies – Highlights
Sterling inched higher against the Australian Dollar, trading at 1.74 AUD. NAB’s analysts noted in a report that 2018 will be a continuation of 2017 for the Australian economy, which is expected to grow by 2.9%. The report mentions that unemployment rate will fall to 5.2% by the end of next year. NAB’s economists predict that the Aussie to US Dollar exchange rate will become slightly weaker during 2018.
The Pound edged up against the New Zealand Dollar, trading at 1.92 NZD. A Westpac report said that New Zealand’s merchandise trade deficit in November was much larger than expected because of a surge in imports for the third month in a row. The report noted that dairy exports dipped, but meat, logs and machinery had strong gains. Economists at Westpac believe that business investment will slow over the next year because of the political uncertainty.
Sterling gained ground against the Swiss Franc, trading at 1.31 CHF. Economists at the State Secretariat for Economic Affairs (SECO) said that leading indicators suggest that the high rate of growth will especially benefit Swiss exports in the next months.