Sterling Lifted by Russian Investigation
The Pound has risen against the US Dollar, initially gaining strength after yesterday’s upbeat UK retail sales release. It rose further against the weakened US Dollar after a report that special prosecutor Robert Mueller is focusing his investigation on Russian meddling in the US election, on President Donald Trump’s campaign. The Dollar had a short-lived boost after Trump’s tax plan passed the vote by the House, only to make a sharp reversal when news broke that his election campaign had been served with a subpoena last month.
European Central Bank (ECB) president Mario Draghi praised the EU’s fall in unemployment as a “remarkable success story.” Speaking in Frankfurt, Draghi said: “Employment in the Euro area has reached its highest level ever, while unemployment has fallen to its lowest rate since January 2009.”
Pound Sterling – UK Markets
Today, the Pound is up against the US Dollar with the exchange rate set at $1.32. Sterling edged up slightly against the Euro with the exchange rate remaining at €1.12. In the absence of important data releases, Brexit negotiations are the day’s focus.
Speaking in Berlin, yesterday, Brexit secretary David Davis warned the EU against “putting politics above prosperity,” saying he believed it to be “incredibly unlikely” that there would not be a Brexit deal. Today, Davis added that he has “been offering some creative compromises and not always got them back” when negotiating. Davis’ Berlin speech was intended to “move things along,” to the next stage of talks. He told the BBC that the other 27 EU countries also want negotiations to progress to a favourable outcome that offers a “mutually beneficial future.”
Prime Minister Theresa May meets with European Council President Donald Tusk in Gothenburg, Sweden today, to discuss the EU’s Brexit deadline. A week ago, the EU’s chief negotiator, Michel Barnier gave the UK two weeks to clarify or concede its positions on the “divorce bill,” the Irish border and EU citizen’s rights. If the EU is not satisfied that sufficient progress is made before the European Council meets to discuss trade in December, the next round of negotiations could be pushed back until at least March. Manfred Weber, head of Europe’s centre-right MEPs, believes May is “close to offering a financial deal to progress Brexit negotiations,” after he met with her for talks this week.
US Dollar – US Markets
Today, the US Dollar slipped 0.33% against the Pound, exchanging at $1.32, with the Euro exchange rate down to €0.84. The US Dollar Index (DXY) lost 0.2%, coming in at 93.67.
Yesterday, the US Dollar rose momentarily after the US House of Representatives approved President Donald Trump’s tax package. Among the concerns regarding the new tax cuts are that they will increase fiscal burden and dampen the chances of interest rate increases. The bill also increases the federal deficit by an estimated $1.4 trillion over the next decade.
The legislature will now be sent to the Senate for their vote. There it will be more difficult to garner support for the plan which has been criticised by the National Association of Realtors (NAR). The group opposes cutting mortgage-interest deductions for new home purchases to $500,000, which is half of the current rate. NAR president Elizabeth Mendenhall stated: “Middle-class homeowners will see their home values fall if this proposal moves forward, while large corporation walk away with the bulk of the tax cuts.”
Later, the Dollar fell sharply when The Wall Street Journal reported that special attorney Robert Mueller’s investigators issued a subpoena to President Trump’s election campaign in mid-October. Mueller’s investigation into Russian involvement in the presidential election has demanded documents and emails from more than 12 top campaign officials that contain keywords relating to Russia. This is the first time President Trump’s campaign has been asked to turn over information, indicating that Mueller has found evidence he wishes to pursue further.
Euro – European Markets
The Euro rose slightly against the US Dollar with the exchange rate set at $1.18, regaining some of the ground it had taken when it hit a one-month high this week. Mario Draghi, president of the European Central Bank was in the spotlight in this morning’s European financial news.
Speaking at the Frankfurt European Banking Congress, Mario Draghi was broadly optimistic about the Eurozone’s economy. He began by highlighting the good news: “The Euro area is in the midst of a sold economic expansion. GDP has risen for 18 straight quarters, with the latest data and surveys pointing to unabated growth momentum in the period ahead.” He added that the ECB’s confidence in this robust recovery continuing is increasing.
Draghi attributed the improvements in employment to increased participation by women in the workforce which has increased by 4 percentage points since 2008 and is now at a record high. Since the financial crisis, older workers are also increasing their participation in the workforce, with those aged between 60 and 64 increasing over 17 percentage points.
The ECB president believes that inflation isn’t self-sustaining, that it won’t rise without “an ample degree of monetary stimulus.” Although the bank will halve its monthly bond-buying programme to €30bn, from January, the ECB is likely to continue its accommodative policy for much of 2018. Draghi credits the “very favourable financing conditions” as a “key motor of the recovery.”
Other Currencies – Highlights
The Pound rose to the Australian Dollar, trading higher at 1.75 AUD, today. October’s business conditions rose to a record-breaking high of +21 in October, according to a NAB business survey. However, Westpac analyst Elliot Clarke noted this was down to gains concentrated mostly in manufacturing in New South Wales. He pointed to the decreased reading of 99.7 from the previous 101.4 in Westpac-MI consumers sentiment survey that shows a fall in economic optimism. Clarke said the November survey indicates that Christmas “spending plans are downbeat with just under a third of consumers expecting to spend more than last year.”
Sterling strengthened against the New Zealand Dollar, trading at 1.95 NZD. New Zealand’s October Manufacturing Purchasing Managers Index indicates the country continues the slow, steady expansion that has been seen since October 2012. The seasonally adjusted PMI reading of 57.2 was a scant 0.4 points lower than had been anticipated, because business sentiment was lower, although new orders showed robust expansion in October.
The Pound slipped against the Japanese Yen today, exchanging at ¥149. 14. In Japanese Prime Minister Shinzo Abe’s first speech since winning the general election last month, he promised to “rid the country of deflation once and for all.” He outlined his goals to increase wages, introduce tax reforms and deregulation. He also promised to “increase pressure on North Korea along with the international community.”