Pound Slips despite Brexit Progress
Friday’s deal between British Prime Minister Theresa May and European Commission president Jean-Claude Juncker didn’t help the Pound on Monday morning as the British currency lost ground against most of its major competitors. May will speak in the House of Commons, later today, and is expected to declare that there is a new sense of optimism on talks with the EU. The Irish government warned that it considers the deal a binding agreement, despite the UK’s chief Brexit negotiator, David Davis, saying that its more of a “statement of intent.”
Bitcoin reached $16,400, having surged 1500% since the beginning of the year. A UBS report said that the cryptocurrencies’ bubble should be ignored, adding that even betting against the bubble is a high-risk case. Grant Spencer, the current RBNZ governor, agreed with this view, noting that “with a bubble, you never know how far it’s going to go before it comes down.”
Pound Sterling – UK Markets
Today, the Pound dropped against the US Dollar with the exchange rate set at $1.33. Sterling also dipped against the Euro with the exchange rate set at €1.13. On Thursday, the Monetary Policy Committee (MPC) will meet to decide on whether to pick up BoE’s borrowing costs.
Apart from the MPC’s meeting, this week will be a busy one for City analysts as data regarding inflation, average earnings, unemployment rate and retail sales are going to be published. A survey by credit card company Visa showed that British consumers reduced spending on Christmas travel arrangements and buying new cars during November. This is the first recorded drop, just before the Christmas period, in the last five years. Inflation and weak wage growth made Britons spend 0.9% less than they did in November 2016.
A Financial Times report, citing senior bank executives in London, said that they would rethink about moving out of the British capital, if there was a deal including keeping the UK in the single market. Bankers grew optimistic about this possibility, as Britain promised to maintain “full alignment” with the single market rules, even if there was no deal regarding the post-Brexit relationship between the UK and the EU. Financial Times sources revealed that bankers “will be lobbying furiously after March 2018 to not move unnecessarily the ability to do business via the UK.”
US Dollar – US Markets
The US Dollar dropped against the Euro with the exchange rate set at €0.84. The US Dollar Index (DXY), which measures the strength of the Dollar against six major currencies, moved lower coming in at 93.80.
On Wednesday, the Federal Open Market Committee (FOMC) is expected to hike the Fed’s benchmark interest rate by 0.25%. This will be the third hike to take place during 2017 and the fifth since rate hikes started in 2015. Economists have given a 92% chance for the rate hike happening in this week’s monetary policy meeting. A BMO CM report noted that the markets’ open question remained how the FOMC “will characterise the broader economic and inflation outlook.”
Wall Street welcomed the most popular cryptocurrency in the world, as Bitcoin futures jumped by 25% in their debut session on Cboe Global Market Inc.’s exchange. Cboe’s website hardly managed to deal with the traffic which exceeded expectations. Until now Bitcoin was traded by individual investors buying it in unregulated markets. Traders told Bloomberg reporters that Bitcoin prices are going higher because of the increase in confidence.
Euro – European Markets
The Euro strengthened against the US Dollar with the exchange rate set at $1.17. The ECB is going to announce its decision on interest rates after its policy meeting on Thursday.
Economists expect that the ECB’s board will keep the benchmark interest rate unchanged at 0%. Danske Bank’s analysts suggested that the Eurozone’s central bank will revise up its inflation forecast for the next year due to high energy price inflation attributed to the higher oil prices in the last months. They believe that the 2020 forecast will show a pick up in inflation towards the 2% target due to the economic momentum and the tightening of the ECB’s bank policy.
Ewald Nowotny, one of the ECB’s governing council members, warned that the central bank should be very careful in unwinding its current low interest rates. A survey by Bloomberg showed that the majority of economists polled believes that the ECB will raise borrowing costs during the second quarter of 2019. In Italy, retail sales in October fell by 1.0%, on a monthly basis. Analysts were expecting a 0.1% decline.
Other Currencies – Highlights
Sterling edged lower against the Australian Dollar, trading at 1.78 AUD. A Westpac report suggested that third quarter’s economic data released in previous days signaled that official forecasts for consumption growth are too high. Westpac’s analysts note that forecasts will have to be revised. A media report said that the Tax Avoidance Taskforce is targeting some of the country’s richest people, looking for unusual transactions and lifestyles that do not match after-tax income.
The Pound slumped against the New Zealand Dollar, trading at 1.93 NZD. Electronic card retail sales jumped by 4.3% in November, on an annualised basis. Credit card use for services went up by 10.9%, while use for fuel was lower by 0.5%. Adrian Orr has been named the new Governor of the Reserve Bank of New Zealand (RBNZ), appointed to lead the central bank of the country for the next five years. Orr was recommended unanimously by the RBNZ’s board to the Finance minister Grant Robertson.
Sterling fell against the Swiss Franc, trading at 1.32 CHF. On Thursday, the Swiss National Bank (SNB) is going to announce its decision on interest rates, which currently stand at -0.75%.