Sterling dropped against the US Dollar as traders preferred to refrain from buying the British currency due to the political uncertainty in the UK. Prime Minister Theresa May’s move to reshuffle the Cabinet backfired when two ministers refused to follow her orders. Health Secretary Jeremy Hunt eventually convinced her to allow him to remain in his place, but Education Secretary Justine Greening quit after she was told that she would move to the Department for Work and Pensions. Many political analysts said that May’s failure puts a question mark on her ability to lead the UK government in the tough Brexit negotiations ahead.

In the Eurozone, the jobless rate fell to 8.7% in November, 0.1% down from October’s figure. The reading is the lowest recorded since the beginning of 2009. In the wider European Union, the jobless rate fell to 7.3%, which is a nine-year low. In the US, the Dollar strengthened as investors are confident that the Fed will stick to its plan for gradual interest rate hikes during 2018.

Pound Sterling – UK Markets

Today, the Pound slumped against the US Dollar, losing 0.24% in value, with the exchange rate set at $1.35. Sterling surged against the Euro with the exchange rate set at €1.13. The Pound is losing value because of the government’s reshuffle which brought to the surface Theresa May’s weakness to control certain members of the cabinet.

The British Retail Consortium (BRC) released data regarding UK retail sales in the last quarter of 2017. The report said that non-food product sales fell to a five-year low in the last three months of the previous year. Economists at BRC noted that non-food sales slumped by 4.4% in the three months to December, marking the biggest drop since 2012. On the contrary, in the same time period food sales increased by 2.6%. BRC’s chief executive Helen Dickinson said that “the divergence between growth in sales of food and non-food has never been so stark. Shoppers continue to see more of their spending power absorbed by essential items.”

A BRC report sent to members of the Parliament warned that British businesses will suffer if the government decides to impose import VAT on all products coming in from outside the UK. Currently, UK firms registered with HRMC have the permission to import goods from the European Union (EU) free of VAT. If the government proceeds with its plans, the BRC says that almost 130,000 businesses will face cashflow and bureaucratic problems.

US Dollar – US Markets

The US Dollar edged up against the Euro with the exchange rate set at €0.83. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, inched higher, coming in at 92.51. The Dollar’s rise is underpinned by investors’ and traders’ belief that the Fed will follow an aggressive policy regarding interest rates in 2018.

Raphael Bostic, the Atlanta Fed President, expressed the opinion that the Fed might not have to proceed in hiking its benchmark interest rates three times during 2018. Bostic noted that weak price pressure and the danger of losing the trust of the public, if the 2% inflation target is not achieved, may force the Fed to become more sceptical about raising borrowing costs. The Fed’s board member also mentioned that economic activity will modestly increase thanks to the tax system reform.

In the afternoon, the US Bureau of Labour Statistics will publish its JOLTS job openings survey for November. Market experts anticipate an increase in the number of job vacancies. Analysts at Nomura wrote that they expect labour demand to remain elevated as the late-cycle expansion continues. They also noted that, during October, the ratio of vacancies to unemployed workers ticked up to 0.92, which is the highest reading ever recorded and a strong indicator of labour market tightness.

Euro – European Markets

The Euro lost ground against the US Dollar with the exchange rate set at $1.19. The single currency was pressed by the renewed buying interest for the US Dollar, after several Fed members affirmed that gradual rate hikes will take place through 2018.

Eurostat published data regarding the unemployment rate in the countries of the Eurozone and the wider European Union in November. The report said that the Eurozone’s jobless rate stood at 8.7%, marking a new low since January 2009, when the financial crisis started to affect the European economies. The lowest rate recorded was in the Czech Republic (2.5%) and the highest in Greece (20.5%).

Data coming from Germany showed that the country’s economy is expanding beyond analysts’ forecasts. German exports increased by 4.1% in November, on a month-to-month basis, surpassing expectations for a 1.2% figure. In the same time period, German imports rose by 2.3%. Germany’s trade balance surplus increased to €23.7bn, almost €2.4bn more than October’s figure. Destatis, which is the official statistics body in Germany, published a survey which indicated that the industrial production surged by 3.4% in November, thanks to a rise in demand for heavy-duty machinery and vehicles.

Other Currencies – Highlights

Sterling inched higher against the Australian Dollar, trading at 1.72 AUD. The Australian Bureau of Statistics (ABS) released data which showed that building permits rose by 17.1% in November, on an annualised basis. The reading surprised experts who had been expecting a smaller 5.0% increase. A Westpac report said that high rise private apartment approvals contributed to the unexpected jump.

The Pound fell against the New Zealand Dollar, trading at 1.88 NZD. A survey by Statistics NZ indicated that home ownership rate is falling while rental demand is increasing. The survey showed that New Zealand’s home ownership rate stood at 62.8% in December 2017, almost 4.0% down from ten years ago. Car sales were especially strong in the last month of 2017, receiving a boost from new rental car purchases which were supported by the tourism boom.

Sterling slumped against the Canadian Dollar, trading at 1.68 CAD. The Bank of Canada (BoC) released a report which said that “inflation expectations for the fourth quarter are modest, unchanged from the previous quarter.”