Pound Hits Two-Month High on Brexit Bill Reports
The Pound hit a nine-week high against the US Dollar and strengthened against the Euro when media reported that the British and the European Union (EU) side are very close to striking a deal over the Brexit bill. According to media sources, senior EU officials said that the UK appeared ready to honour its commitments. Donald Tusk has set the 4th December as a deadline for the UK side to present a new and final offer regarding the Brexit bill. Tusk, who is the President of the European Council (EC), told Theresa May that negotiations are not going to proceed unless there is a new offer and sufficient progress.
Michel Barnier, the EU’s chief Brexit negotiator, denied that a final deal has been made, but noted that the two sides are working on it. The UK transport secretary tried to defend the government against criticism about the impending settlement saying that “I don’t think people in this country would expect us to just walk away from things we’ve already said we’d pay for.” In Europe, consumer confidence in November hit the highest level since 2001.
Pound Sterling – UK Markets
Today, the Pound jumped against the US Dollar with the exchange rate set at $1.34. Sterling also strengthened against the Euro with the exchange rate set at €1.12. The British currency received a boost when media reports said that the government could pay a £50bn Brexit bill in order to tempt the EU into starting the desired trade talks.
Reports from various media outlets this morning, citing sources from Brussels, said that the UK and the EU negotiators began to agree over the methodology for calculating the Brexit bill, with the result being acceptable finally from both sides. The President of the EC, Donald Tusk, had set as a deadline for a British final offer, regarding the bill, the 4th of December. Officials in Brussels noted that there is no final agreement on the amount of money that the UK will pay to exit the EU, but reports suggest that the figure will be between £45-£55bn. Prime minister Theresa May will meet with the President of the European Commission (EC), Jean-Claude Juncker on Monday in the Belgian capital.
The Bank of England (BoE) published data which showed that consumer credit fell in October. City analysts were expecting that consumer credit would rise, but instead of that it dropped, hitting an 18-month low. Borrowing on credit cards and other kinds of unsecured consumer credit grew by 9.6% during October, on an annualised basis. Economists are concerned that falling wages and inflation are pushing UK consumers to borrow. According to a BoE survey, mortgage approvals fell more than anticipated in October, coming in at 64,575 instead of 65,000. The figure constitutes a 13-month low.
US Dollar – US Markets
The US Dollar fell against the Euro with the exchange rate set at €0.84. The US Dollar Index, which measures the strength of the Dollar against six major currencies, also lost ground coming in at 93.05. In the afternoon, the US Bureau of Economic Analysis will publish data regarding the third quarter’s GDP.
The Senate Budget Committee voted in favour of advancing the Republican tax bill. Two Republican senators changed their opinion and joined the “Yes” camp resulting in a 12-11 vote which could lead to a full Senate vote as early as Thursday. President Trump said that “the tax reform bill is going to pass and it’s going to be very popular. It’s going to have lots of adjustments before it ends. But the end result will be a massive- the largest in the history of our country- tax cut.”
Congress’ Democratic leaders Nancy Pelosi and Chuck Schumer skipped a meeting with President Trump which would have focused on the government budget. The incident raises the risk of a government shutdown in December. “They've decided not to show up. They've been all talk and they've been no action and now it’s even worse. Now it’s not even talk,” complained Trump. Pelosi said that she didn’t attend the meeting because of a different approach on illegal immigration and the tax reform.
Euro – European Markets
The Euro edged up against the US Dollar with the exchange rate set at $1.18. The European Commission published data regarding economic conditions in the Eurozone, and the European Central Bank (ECB) issued a warning about a possible stock market downturn.
The ECB said in a report published today that, despite the undeniable economic growth in the Euro-bloc, the fear of a sudden increase in volatility remains. The ECB’s Financial Stability Review states that “compression of risk premia, subdued volatility and signs of increased risk-taking behaviour in global markets are all sources of concern, as they may sow the seeds for larger asset price correction in the future.” The Eurozone’s central bank analysts note that “systemic stress indicators for the Euro area have remained low over the last six months, but the risk of a rapid repricing in global financial markets still remains.”
According to data published by the Commission, November’s economic sentiment indicator in the Euro bloc came in at 114.6, in line with expectations. Business climate, industrial confidence and services sentiment rose, but it was less than anticipated. The Commission’s survey showed that business climate indicator hit a ten-year high. Consumer confidence rose above negative territory, coming in at 0.1 in November. In Sweden, the country’s GDP increased by 2.9% in the third quarter, on a year-to-year basis, missing expectations for a 3.5% figure. The INSEE released data which showed that the French GDP increased by 0.5% in the third quarter of 2017, on a quarterly basis.
Other Currencies – Highlights
Sterling edged up against the Australian Dollar, trading at 1.76 AUD. A report by NAB said that domestic gas prices are going to pick up on the back of oil prices rising faster than anticipated. NAB’s analysts note that higher gas prices and tighter supply will have an impact on the National Electricity Market (NEM) making electricity more expensive, especially during summer 2018.
The Pound moved higher against the New Zealand Dollar, trading at 1.94 NZD. Grant Spencer, the Reserve Bank of New Zealand’s (RBNZ) Governor, noted that there is a slowdown in housing construction activity. Spencer said that the RBNZ decided to allow the banks to lift the amount of lending they can do to borrowers with deposits of less than 20% from 1st January. The RBNZ’s Governor stressed that the new loan-to-value ratio (LVR) changes won’t have a significant impact on house prices.
Sterling gained ground against the South African Rand, trading at 18.26 ZAR. According to a Rand Merchant Bank (RMB) survey, business confidence in the country deteriorated further in the fourth quarter, despite an improvement in motor trade confidence.