Pound Continues to Strengthen for a Second Day
The Pound continued today to strengthen against the US Dollar and the Euro, boosted by yesterday’s reports of a breakthrough on the issue of the Brexit bill. The financial settlement would hopefully help move the negotiations to the second round of trade talks after December’s EU Summit, when EU leaders would decide whether sufficient progress has been made. Theresa May, who is on a trip in the Middle East to visit Jordan, Iraq and Saudi Arabia, declined to comment on President Trump’s new tweet in which he urged her to focus on the UK’s domestic problems with terrorism, rather than criticising his anti-Muslim tweets.
In Europe, the single market currency fell when data showed that the Eurozone’s inflation figure dropped unexpectedly in November. Oil ministers from OPEC countries are meeting in Vienna to decide if the organisation will keep unchanged its policy of curbing oil output. Before the meeting, some of the ministers said that OPEC could only increase oil production again after summer 2018.
Pound Sterling – UK Markets
Today, the Pound continued to strengthen against the US Dollar with the exchange rate set at $1.34. Sterling edged up against the Euro with the exchange rate set at €1.13, very close to a monthly high. The British currency seemed to be keeping yesterday’s momentum when media reports said that the UK and EU sides are close to settling the Brexit bill.
A survey by Nationwide revealed that UK house prices remained unchanged from October to November, despite economists’ hopes for a small spike. During November, house prices increased by 2.5% on an annualised basis, again missing expectations for a 2.7% rise. Market experts suggested that the housing market activity is currently muted as household incomes are getting squeezed by inflation and are affecting the confidence of potential purchasers. Howard Archer, an economic adviser in EY ITEM Club, said that “the house market is likely to be hampered by fragile consumer confidence and limited willingness to engage in major transactions.”
Consumer confidence in the UK declined further in November, according to a survey by GfK. The GfK consumer confidence index dropped to -12, below the decline that was forecast to be -11. This is the worst reading in the last sixteen months. Market research analysts noted that the interest rate hike by the BoE, inflation and sluggish wage growth put a strain in consumers’ willingness to spend money in shopping. The survey by GfK also stressed that UK households are not thinking of making large cost purchases, something which is bad news for retailers who wait for the Christmas season to record profits.
US Dollar – US Markets
The US Dollar edged up against the Euro with the exchange rate set at €0.84. The US Dollar Index (DXY) moved higher at 93.43. At lunchtime, October’s personal consumption expenditure data will be published by the Department of Commerce.
According to data published yesterday, the US GDP expanded by 3.3% in the third quarter of the year, on annualised basis. This has been the strongest pace in the last three years. Wall Street economists anticipated an expansion by 3.2%. In the last two quarters, US economy has exceeded President Trump’s target for a 3% growth. The strong reading in the third quarter increased chances for an interest rate hike by the Federal Reserve in December to 95.9%.
A note by Goldman Sachs analysts warned that market valuations are at their highest level since 1900, which increases the risk for a potential downturn ahead. In their report, they stress that “it has seldom been the case that equities, bonds and credit have been similarly expensive at the same time. All good things must come to an end. There will be a bear market eventually.”
Euro – European Markets
The Euro dipped against the US Dollar with the exchange rate set at $1.18. The single market currency recorded losses right after the publication of data regarding inflation in the Eurozone.
According to data released by Eurostat, the Euro-bloc’s inflation in November stood at 1.5%, on an annualised basis. The Eurozone core inflation in November, on a yearly basis, came in at 0.9%. Both readings were lower than anticipated by economists, bringing disappointment to markets since the ECB’s inflation target is set at 2%. Positive news came from the labour sector, since unemployment rate in the Eurozone fell to 8.8% in the last month of autumn. The reading is the lowest in the last eight years.
In Germany, the unemployment rate in November stood at 5.6%, but the bad news came from October’s retail sales as data showed that they declined by 1.4%, on a year-to-year basis, instead of rising by 2.8% as it was forecast by analysts. In France, November’s inflation came in at 1.3% in line with expectations. The Spanish GDP in the third quarter of 2017 increased to 3.1%, on an annualised basis, as it was anticipated. Inflation in Italy during November recorded an unexpected drop to 0.9%.
Other Currencies – Highlights
Sterling strengthened against the Australian Dollar, trading at 1.77 AUD. A survey revealed that, during the third quarter, capital expenditure (capex) increased by 1%. Investment in the sector of services, which constitutes 60% of total capex, rose by 2.1%. However, a decline by 2.7% of investments in the manufacturing sector was also recorded. Another report released in the morning showed that the number of building approvals increased unexpectedly by 0.9%, instead of dropping by 1%.
The Pound jumped against the New Zealand Dollar, trading at 1.96 NZD. An ANZ survey regarding the business outlook in the country showed that business confidence fell sharply in November. ANZ’s analysts suggest that the reason for the drop are the policies of the new coalition government, the declining housing market and the reluctance of banks to give credit.
Sterling edged up against the Swiss Franc, trading at 1.32 CHF. Retail sales fell by 3.0% in October, on a year-to-year basis, surprising analysts who were anticipating a small 0.3% rise.