Sterling Slips on Concerns Over Brexit Impact
The Pound continues to suffer losses against most major currencies as the world awaits Theresa May and Arlene Foster’s meeting to discuss ways to solve the Irish border problem. According to media reports, DUP officials believe that a conversation between the prime minister and their party’s leader wouldn’t make any difference, unless major changes were made to the proposed deal with the European Union.
May also faces pressure by senior Tory members who claimed that they were not properly informed about the so-called “regulatory alignment” that the prime minister offered to Jean-Claude Juncker. Brexit secretary David Davis said that the UK government hasn’t done any impact assessment on Brexit. Boris Johnson noted that the current impasse “is all the more reason to get on with stage two of the negotiations.”
Pound Sterling – UK Markets
Today, the Pound slumped against the US Dollar with the exchange rate set just under the $1.34 mark. Sterling also edged lower against the Euro with the exchange rate set at €1.13. The Pound keeps losing ground against most of its competitor currencies as Brexit negotiations are on the verge of failing.
The DUP’s response to the negotiations between the UK government and the EU with regards to the Irish border was underestimated as Nomura analysts said in their report. “We and the market underestimated how far the DUP would go with its demands and there now exists the risk of further delays,” Nomura experts noted. The report said that if negotiations fall through, “the market may attempt to price for tail risks of a Conservative leadership contest and/or another UK general election and with it a lower Pound.”
Brexit secretary David Davis appeared before the Commons Brexit Committee to answer MPs’ questions. Yesterday, Davis said that any alignment between the north and the south in Ireland would apply to the whole of the UK. Today, Davis told MPs that the government has no overall impact assessment on Brexit. The Brexit secretary noted that it’s not necessary to assess the impact of Brexit on individual sectors of the economy. Davis stressed that the UK government will assess the impact of various Brexit outcomes later as negotiations move forward.
US Dollar – US Markets
The US Dollar inched higher 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, came in at 93.32. In the afternoon, the Department of Labour will publish data regarding nonfarm productivity in the third quarter and employment change in November.
A report published by Fitch, a US-based credit ratings agency, said that “the passage of a tax reform bill by the Senate last weekend puts an end to any lingering uncertainty about the achievability of tax reform.” Fitch analysts noted that the upcoming reform was already taken into consideration when they were making their macroeconomic forecasts. However, they stress that the proposed tax cuts will lead to larger federal deficits in the long term, with only temporary growth effects.
The US President doesn’t seem to agree with Fitch’s pessimistic forecast. Donald Trump told reporters in the White House that, “I view it more than anything else as it’s a tremendous bill for jobs and for the middle class. I think people see that and the more they learn about it, the more popular it becomes.” Two polls showed that one out of three US citizens back the tax proposals, as most voters don’t believe that the tax reform will be beneficial for their interests.
Euro – European Markets
The Euro inched lower against the US Dollar with the exchange rate set at $1.18. The European Central Bank (ECB) is having its non-monetary policy meeting today in Frankfurt.
IHS Markit published November’s German Construction PMI data. The index ticked lower, coming in at 53.1 versus a 53.3 reading in October. Germany’s construction sector seemed to lose momentum in November as the first drop in new orders was recorded for the first time in the last twelve months. Growth in total construction industry hit a ten-month low. Business confidence towards the outlook of the sector moderated to the lowest level observed in the last year.
News coming from the German retail sector activity were much better according to Markit’s report. The German Retail PMI hit 54.6 in the last month of autumn, hitting a six-month high. In France, November’s Retail PMI came in at 52.2, which is a two-month high. A rise in purchasing activity and an increase in people getting employed helped the Eurozone’s Retail PMI to hit a five-month high in November.
Other Currencies – Highlights
Sterling gained a bit of ground against the Australian Dollar, trading at 1.76 AUD. The Australian Bureau of Statistics (ABS) released data regarding the country’s GDP in the third quarter of the year. The Australian GDP grew by 0.6%, on a quarterly basis, and 2.8%, on an annualised basis, missing expectations in both cases. Consumer spending lifted by only 0.1%, which is the weakest reading since 2008. Westpac analysts noted that the ABS report did nothing to change their forecast for no Reserve Bank of Australia (RBA) rate hikes in 2018.
The Pound dipped against the New Zealand Dollar, trading at 1.94 NZD. A survey by ANZ showed that job ads fell by 0.1%, on a monthly basis, in November. Despite the minor drop, the number of job ads is still at historic highs as the ANZ’s report noted. Quarterly growth in job ads slowed modestly to 1.3%. In Auckland, job ads growth has slowed to a 2.2%, on a year-to-year basis, which is the lowest growth rate in five years.
Sterling fell against the Swiss Franc, trading at 1.32 CHF. Inflation in November stood at 0.8%, on an annualised basis, coming in a bit lower than anticipated.