The Pound is struggling to hold onto recent gains made against the US Dollar, which has been recovering since the US government shutdown ended. The UK’s budget deficit fell by much more than had been expected, due to record high VAT receipts and an unusually large credit for the European Union. This drop in British public borrowing is very likely to help Chancellor Philip Hammond meet his March budget target.

The US government shutdown ended yesterday, with a stopgap measure that will continue funding until 8 February. Senate majority leader, Mitch McConnel has promised to debate the immigration status of the undocumented immigrants brought to the US as children. If an agreement isn’t reached on the highly contentious issue, there is the likelihood of another shutdown. After signing a funding bill to end the shutdown, president Donald Trump will now be able to attend his first Davos World Economic Forum this week.

Pound Sterling – UK Markets

The Pound lost a little ground against the US Dollar, with the exchange rate set at $1.39. In the morning, with the Pound’s steady rise against the Dollar, there had been hope it would hit the $1.40 mark. Sterling slipped a little against the Euro, with the exchange rate set at €1.14.

December’s Public Sector Net Borrowing figures were much better than the £5bn deficit that had been expected. Due to the strongest VAT receipts on record and a large credit of £1.2bn from the European Union, the budget deficit fell from £8.25bn to £2.6bn. VAT receipts increased by 4% annually, raising them to £12.3bn. Chancellor Philip Hammond will be pleased to know his target of a figure of £49.9bn in borrowing by the end of March is achievable. Total public borrowing since April 2017 is now at £50bn, which is 12% lower than was recorded over the same period in 2016.

Today, the Confederation of British Industry (CBI) releases their January Industrial Trends Survey. The expert opinion from senior manufacturing executives is expected to show a slightly less positive sentiment from December’s figure of 17, down to a reading of 13. Yesterday CBI warned that time is running out on Brexit and, given the “lack of clarity” on trade talks, the UK should remain in a customs union with the EU.

The Competition and Markets Authority (CMA), has said that Fox’s proposed takeover of Sky is not in the public interest. The UK regulator has provisionally found that if the deal moved ahead as planned, the Murdock family would have too much control over public opinion and the political agenda. Fox has a 39% share of Sky and has been trying to purchase the remaining 61%. Anne Lambert, chairwoman of the CMA’s independent investigation group said:” It is very important that no group or individual should have too much control of our news media or too much power to affect the political agenda.”

US Dollar – US Markets

The US Dollar strengthened against the Euro with the exchange rate set at €0.81. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, has risen from recent lows, coming in at 90.46.

On the strength of a commitment by Senate Majority leader Mitch McConnell that he would address the status of young immigrants known as ‘dreamers,’ 33 Senate Democrats voted with 48 Republicans to end the 3-day government shut down. The Democratic Senators will now fight with conservative members of Congress and the president to pass an immigration bill that shields over 800,000 young undocumented immigrants from deportation.

On Monday, 22 January the US Trade Representative’s office announced it will impose new trade tariffs of as much as 30% on imported solar equipment and charges as high as 50% on foreign-made washing machines. South Korea’s trade minister called Trump’s decision “excessive and a clear violation of World Trade Organisation rules.” China, the world’s largest supplier of solar products, expressed “strong dissatisfaction.” The Chinese Commerce Ministry also said the move “aggravates the global trade environment.”

The Chicago Federal Reserve National Activity Index showed regional gains for December, due to increased factory growth. Unemployment, personal consumption and housing weakened in the reading which averages 85 economic indicators to gauge the economy. December’s reading rose to a positive 0.15 slightly up from 0.14 in November. October’s surge to 0.87 had been the highest reading in this highly volatile index since it came in at 0.94 in December 2006.

Euro – European Markets

The Euro slipped against the US Dollar, shedding 0.17% in value, with the exchange rate set at $1.22.

Today marks the first day of the annual meeting of the World Economic Forum in Davos, Switzerland where heavy snowfall has raised the risk of avalanches and slowed the commutes of those attending. This year’s theme is “Creating a Shared Future in A Fractured World” and president Donald Trump’s scheduled speech is likely to be the forum’s major news release this week.

French retail giant Carrefour SA is forming a partnership with Chinese tech firm Tencent Holdings Ltd, and investing €2.8bn over five years in a bid to compete with Amazon. The plan to save €2bn annually by 2020 involves cutting 2,400 jobs at Carrefour’s headquarters in France, selling 273 former Dia stores and reducing the sizes of Carrefour’s hypermarkets in France. The company will also streamline their online stores in France down to a single platform and open 2,000 convenience stores in major cities over the next five years.

German consumer confidence remains strong, according to today’s release of the ZEW institute economic sentiment index. In spite of the atmosphere of political uncertainty prior to the coalition talks, economic sentiment came in at 20.4 points, which was a rise from December’s reading of 17.8. The current conditions index rose from 89.3 points up to 95.2 which marked the most positive assessment of the current economic environment since the survey was launched in 1991.

Other Currencies – Highlights

Sterling continues strengthening against the Australian Dollar, trading higher at 1.75 AUD. GDP growth was sluggish at the start of last year, however, in the second half of 2017, Australia’s GDP accelerated to 2.8%. The Reserve Bank of Australia and the Australian Treasury expect the momentum to carry through 2018, accelerating economic growth even further.

The Pound slipped lower against the New Zealand Dollar, trading at 1.90 NZD. Yesterday both SBS and TSB banks dropped their fixed one-year home rate to the unusually low rate of 4.44%. Anticipating Donald Trump’s policies would have a more negative influence on the country’s economy, the banks had warned they would be raising rates last year.

The Pound has fallen slightly against the Japanese Yen today, exchanging at 154.84¥. Today, the Bank of Japan’s policy statement showed the central bank will not alter momentary settings since the strengthening economic recovery appears likely to bring inflation to their 2% target.