Government Shutdown Hurts US Dollar
Sterling strengthened against both the US Dollar and the Euro, as investors and traders are expecting the UK’s GDP data for the fourth quarter of 2017 due to be released on Friday. In the US, the government shutdown continues for a third day, since Republicans and Democrats failed to reach a deal that would allow the funding of federal services.
In Germany, 56% of the SPD delegates attending the party’s congress in Bonn voted in favour of continuing talks on forming a coalition government with Angela Merkel’s CDU political party. In Davos, Switzerland, seventy world leaders will be attending the World Economic Forum (WEF) in order to discuss global economic problems and promote international cooperation.
Pound Sterling – UK Markets
Today, the Pound edged up against the US Dollar, with the exchange rate set at $1.39. Sterling also inched higher against the Euro, with the exchange rate set at £1.13. Data regarding the UK’s GDP, the unemployment rate and public sector net borrowing are scheduled to be published later this week.
Carolyn Fairbairn, the director general of the Confederation of British Industry (CBI), is going to deliver a speech in the evening in which she will urge prime minister Theresa May to keep the UK in the EU customs union. Fairbairn is going to stress in her remarks that this would be the best option for British businesses. The CBI’s director general will mention that a transitional deal with the EU should be agreed by the end of March, adding that the future trade relationship’s framework should be set out by October.
Emmanuel Macron kept making the headlines over the weekend, this time with his interview on the BBC. The French President said that the UK “cannot by definition have full access to the single market unless it contributes to the budget, accept the freedoms, the four pillars and the jurisdiction.” Regarding the access of the UK’s financial services to the single market, Macron noted that “it depends on the proposals made by the UK, but for sure full access for financial services to the single market is not feasible given the functioning of the single market.”
US Dollar – US Markets
The US Dollar fell against the Euro, with the exchange rate set at €0.81. The US Dollar Index (DXY), which measures the value of the Dollar against six major competitor currencies, inched higher coming in at 90.54.
Republican and Democrat senators failed to strike a deal in time for a Sunday night vote with the government shutdown going into a third day. Mitch McConnell said that he aims to advance a short-term stopgap spending bill on Monday afternoon. However, Chuck Schumer, who is the Senate’s minority leader, noted that Democrats are not convinced that enough progress has been made in talks to move forward.
Almost one million federal employees are expected not to report for work on Monday morning as government services will have to remain closed as long as the shutdown lasts. Chuck Schumer said that “talks will continue, but we haven’t reached an agreement that would be acceptable for both sides.” Analysts noted that if the shutdown is prolonged, investors’ confidence in US assets might be shaken.
Euro – European Markets
The Euro gained ground against the US Dollar, with the exchange rate set at $1.22. The single currency took advantage of the US Dollar’s fall and gained 0.2% in value.
Germany is one step closer to forming a new government as 56% of delegates who attended the special SPD congress in Bonn voted in favour of renewing the grand coalition with Angela Merkel’s Christian Democrats. Martin Schultz, who is the SPD leader, said in his remarks that “if we want to shape things in and for Europe, important decisions have to be made now.” The next round of coalition talks with the CDU will take fifteen to twenty days and analysts suggest that the new government would be able to take its first decisions by the end of February.
Mario Centeno will attend his first meeting of the Eurozone’s finance ministers as the new Eurogroup president. The financial assistance for Greece is going to be at the top of the agenda. Economists said that ministers will discuss the idea of a precautionary program for Greece which would include a debt-relief. Ministers are also expected to address the issue of tax harmonisation in order to solve the problem of large corporations enjoying long period tax reductions in various EU countries.
Other Currencies – Highlights
Sterling surged against the Australian Dollar, trading at 1.73 AUD. According to Xinhua, the Chinese news agency, Scott Morrison said that his plan is to make a major corporate tax cut during 2018. The Australian Treasurer aims at reducing the tax rate from 30% to 25% over the next decade, however his plan faces strong opposition. Morrison would like to also cut the personal income tax and has said that this year will be full of opportunities for workers and businesses.
The Pound gained ground against the New Zealand Dollar, trading at 1.90 NZD. An ASB survey noted that “most homeowners still look reasonably well-placed to meet mortgage commitments.” Economists at ASB wrote in the bank’s “Economic Weekly” report that they don’t see much likelihood of a “significant” housing correction and expect “mild” price rises during 2018.
Sterling retained its value against the Swiss Franc, trading at 1.33 CHF. The Swiss Economics Minister Johann Schneider-Ammann said that he doesn’t think that the US tax reform will drive US companies out of Switzerland.