The Pound is holding near a 3-month high against the weakened US Dollar, at just under $1.36 ahead of the release of the IHS Markit construction Purchasing Manager Index (PMI). It remains resilient, although the PMI fell short of expectation that it would be slightly lower than the previously strong reading. This was the result of “historically low business confidence and heightened uncertainty,” according to IHS Markit’s chief business economist. The decline in commercial construction and civil engineering projects is being offset by a strong increase in house building.

The US Dollar is making slight gains today ahead of the release of the minutes of the Federal Reserve’s Open Market Committee meeting in December. Economists are expecting to see a March interest rate hike, as the first of three rate hikes over the year, announced in the Fed’s monetary policy plans. Also, today, the ISM Manufacturing PMI for December is expected to show a slight slowdown from November’s growth.

Pound Sterling – UK Markets

Sterling has slipped slightly against the US Dollar, with the exchange rate set at $1.35. Sterling is holding strong against the Euro, with the exchange rate set at €1.12.

In December the UK’s construction growth slowed down, according to today’s IHS Markit/CIPS construction PMI release. After a five-month high reading of 53.1, the fall to 52.2 indicates the sector’s first slowdown since September. Chris Williamson, IHS Markit’s chief business economist, pointed out that a decline in business investment in fixed assets was linked to the low confidence and increased uncertainty in the sector.

Today, marks the first day that the EU’s Markets in Financial Instruments Directive (MiFid II) comes into force with sweeping reforms to the City’s financial sector. The introduction of this colossal piece of EU legislation represents the largest regulatory reform in a decade. The purpose of MiFid II is to increase financial market transparency, improve investor confidence and strengthen the industry.

According to the Resolution Foundation, 300,000 British people who are jobless or on very low wages are not claiming the government benefits they are entitled to. On average, they are missing out on at least £73 a week. Of the 1.5 million jobless adults in the UK, 800,000 claim jobless benefits. This gap is due to factors including changing jobs too quickly to claim benefits or having other income sources. The report warns that older women and younger men are the most likely among those they term the “forgotten unemployed.”

In their annual survey of UK economists, the Financial Times reports that UK growth will lag behind the increased global growth across developed countries. Economists predict the UK will be pulled between Brexit negotiation uncertainties that will limit investment, while taking a limited part of the increasing global growth. The economists forecast that in 2018 growth will average 1.5%, with the consensus agreeing that Eurozone growth will surpass the UK’s. The most pessimistic respondents called the UK “the sick man of Europe,” anticipating that the GDP will drop to 1%.

US Dollar – US Markets

The US Dollar has started to make slight gains today, holding steady against the Pound at just under $1.36 and the Euro with the exchange rate at €0.82. The US Dollar Index (DXY) has risen to 91.96, largely in anticipation of news of a US interest rate hike.

Today’s most important data release for the US currency are the minutes of the Federal Open Market Committee which may indicate the US central bank’s interest rate hike intentions for the year. The December meeting minutes will be scrutinised for indications of a March rate hike with the possibility of a total of three hikes during the year, bringing rates between 2.75% and 3.0%. Their concerns about inflation remaining under the 2% target may prompt a more cautious approach, however.

Yesterday, the US Manufacturing PMI for December came in at 55.1, just slightly surpassing the positive expectation that it would rise to the robust level of 55.0. Growth in output surged up from November’s figure of 53.9, reaching an 11-month high. The rate of expansion due to new business orders accelerated to a 10-month high causing firms to increase hiring to the fastest rate since 2014.

Today’s ISM Manufacturing PMI for December is likely to hold steady or slip slightly from the previous reading of 58.2. A weaker than expected release may weaken the US Dollar further since it would appear to reduce the odds of a higher interest rate hike.

Euro – European Markets

The Euro has weakened against the US Dollar, with the exchange rate set at $1.20. The Euro has lost strength against the Pound, exchanging lower at €0.88.

The German unemployment rate has fallen to a record low rate of 5.5%, as the number of jobless persons decreased for the sixth month in a row. Prior to German unemployment figures out this morning, economists expected a decrease of only 12,000, but they dropped by twice that to 29,000. In western Germany, the number of jobless fell by around 20,000, with the remainder of those living in the East with the total of unemployed reduced to 2.442 million.

After an inconclusive September election and Angela Merkel’s failure to form a coalition with the Greens and free Democrats in November, the German government have yet to formally negotiate with the Social Democrats. If those discussions fail, the country must hold a new round of elections. This political paralysis has delayed Merkel’s response to French president Emmanuel Macron’s plans to reform the Eurozone which he unveiled in September. In December, Merkel promised that she and Macron would agree on a deal of “huge importance” for the Euro’s future by March.

Other Currencies – Highlights

Sterling has slipped against the Australian Dollar, trading slightly lower at 1.73 AUD, as well as the New Zealand Dollar, exchanging at 1.91 NZD. Both antipodean currencies have been weaker at the start of the year despite positive recent developments. Higher copper prices support Australia’s mining export sector and milk prices rising by 2.2% are a boost to New Zealand’s top export.

The Pound is trading a little higher against the Canadian Dollar, exchanging at 1.70 CAD. Canada’s December Manufacturing PMI reflected the strongest increase in business growth since September. The reading of 54.7 beat expectations and was a rebound from November’s figure of 54.4 which had marked an 11-year low.

Sterling has picked up some strength against the Swiss Franc, exchanging at 1.32 CHF. Switzerland’s December manufacturing Purchasing Managers Index surpassed expectations of a reading of 54.5 with a much stronger figure of 65.4.