The Pound rebounded against the US Dollar which weakened yesterday, after US inflation unexpectedly fell. Sterling has performed well against all major peers, except for the Euro, which has strengthened over the past two days. Prime minister Theresa May has met with the heads of major UK and European banks, to assure them that they are a priority in upcoming Brexit negotiations.

The Euro has soared to its highest levels against the US Dollar since December 2014. It rose yesterday, when the upbeat European Central Bank minutes from December’s meeting, indicated policymakers are ready to revise monetary policies. Given the decade of strong growth, the ECB is looking at altering its monetary guidance. The Euro rose further on today’s news that Angela Merkel’s conservatives, reached a breakthrough in coalition talks to form a new government.

Pound Sterling – UK Markets

Today, the Pound was lifted higher against the US Dollar, with the exchange rate up to $1.36. Sterling lost ground against the Euro, with the exchange rate set at €1.12.

Prime minister Theresa May, has told bankers that they are a priority in Brexit trade negotiations, at a Downing Street meeting yesterday. As London’s financial services industry prepares for losing access to European markets, the prime minister met with some of Europe’s most powerful financiers including the chairmen of HSBC, Barclays, UBS and Goldman Sachs International. May’s spokesman said that the executives requested more clarity on the UK’s future relationship with the EU. The prime minister asked them to emphasise the benefit of preserving London’s position as Europe’s financial centre.

A report by Cambridge Economics that was commissioned by Sadiq Khan, the mayor of London, has predicted that the effect of leaving the EU without a trade deal could cost the UK nearly £50bn in investment by 2030. GDP is estimated to fall by 3% and over half a million fewer jobs than previously expected would also be likely during the same period of time. The report, which analysed the consequences of five separate scenarios, concluded: “The more severe the type of Brexit, the greater the negative impact will be on the UK.”

US Dollar – US Markets

The US Dollar fell against the Euro with the exchange rate lower at €0.82. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, also dropped lower coming in at 91.38.

US inflation fell for the first time in almost a year and a half, according to data released yesterday by the Bureau of Labour Statistics. December’s Producer Price Index unexpectedly fell to 0.1%, when it had been expected to rise to 0.2% due to declining costs for services. The Dollar fell on concerns that persistent weak inflation could result in the Federal Reserve showing more caution in raising inflation rates this year.

Later today, three key data releases might move the Dollar similar to the way the inflation data has. Month-on-month Retail Sales for December are expected to drop to 0.5% from November’s figure of 0.8%. Two Consumer Price (CPI) Indices are also due out. These CPIs are a key indicator that measures inflation and changes in purchasing trends and the Dollar will be weakened further if the readings indicate inflation is dropping.

US president Donald Trump has cancelled his UK visit to open the new embassy in London next month due to fears of mass protests. He tweeted that his reason was his disapproval of his predecessor, Barack Obama getting a “bad deal” when selling the current embassy, although this was inaccurate since the plan to move to Nine Elms for Mayfair was announced in 2008, when George W. Bush was president.

Euro – European Markets

The Euro has soared to over a three-year high against the US Dollar, with the exchange rate higher at $1.21. The single market currency was first boosted by the upbeat European Central Bank (ECB) minutes of their policy meeting released yesterday. The Euro rose further on today’s news that Angela Merkel’s conservatives reached a breakthrough in coalition talks

The Euro rose against the US Dollar, following yesterday’s release of the ECB minutes, which increased expectation the central bank will reduce its monetary policy stimulus programme, after reviewing the policy in early 2018. Accounts of the December meeting showed that, due to the Eurozone’s strongest growth in a decade, the ECB will gradually shift its stance to avoid a disruptive move later. The central bank intends to reduce their focus on purchasing bonds, increasing emphasis on raising rates as they examine a broader revision of policy guidance.

Today, German Chancellor Angela Merkel’s conservative party and the Social Democrats have agreed on a blueprint for formal coalition negotiations, improving the prospects for an end to months of political uncertainty. This agreement between the party and parliamentary leader opens the door to detailed negotiations in the weeks ahead. The agreement increased the Euro’s value since it strengthens Merkel’s position as Chancellor as well as Germany’s role in international affairs.

The European Commission has announced its plan to raise €1bn to build supercomputers in a race to catch up with the US and China. In a bid to be among the top ten fastest supercomputers, the Commission will contribute nearly half of the €1bn with the rest of the funding to come from member states. Andrus Anders, the European Commission vice president for the digital single market said: “It is a tough race and today the EU is lagging behind. We do not have any supercomputers in the world’s top ten.”

Other Currencies – Highlights

Sterling strengthened against the Australian Dollar, exchanging at 1.71 AUD. Analysis by the Australian Institute said yesterday that perceived corruption in the country’s public service may have cost the economy $72.3bn, which amounts to 4% of the latest GDP figures.

The Pound rose against the New Zealand Dollar, trading at 1.87 NZD. Analysts anticipate the Kiwi will strengthen in 2018 as more clarity about the Reserve Bank of New Zealand’s (RBNZ)monetary policy will be seen when Adrian Orr, the new RBNZ governor takes the helm in March.

Sterling is trading higher against the Japanese Yen, today with the exchange rate set at 150.84¥. Today the Cabinet Office released Japan’s Eco Watchers Survey which accesses short-term regional economic trends. The unexpected low reading of 53.9 was much weaker than the 55.2 figure which had been anticipated.