Sterling Volatile as Brexit Talks in Focus
The Pound dipped against the US Dollar and the Euro, reversing a minor rise against the two currencies early in the morning. The EU Summit in Brussels entered the second and final day with political analysts expecting that the EU leaders will agree on moving forward to the second round of negotiations with the UK. Prime Minister Theresa May was applauded for her persistence and the way that she handled the negotiations so far on behalf of Britain.
In the US, two more Republican senators expressed their objections on certain parts of the proposed tax reform plan. Republicans are aiming at sending the tax bill to President Donald Trump for signature until Christmas. In the Eurozone, the trade balance surplus shrank in October to €19bn unexpectedly. Exports fell by 2.4% on a monthly basis while imports rose by 0.6%, according to data published by Eurostat.
Pound Sterling – UK Markets
Today, the Pound fell against the US Dollar with the exchange rate set at $1.34. Sterling dropped against the Euro with the exchange rate set at €1.13.
According to a Financial Times report, EU leaders are expected to agree today to move Brexit negotiations into their second phase. They are also expected to ask from the British side to clarify the kind of deal it wants. The President of the EC, Jean-Claude Juncker, said that the second round of negotiations will begin as soon as possible, but stressed that it will be much more difficult than the first one. When asked by journalists, Juncker said that it depends on the British parliament and British people whether the UK will ultimately leave the EU.
Joseph Muscat, the Prime Minister of Malta, urged the UK to present its vision in the next few weeks in order to enable trade talks after March’s EU Summit. Yesterday, Theresa May was applauded by EU leaders because, as Juncker noted, “some of us thought, including me, that she did make big efforts and that had to be recognised.” Being in Brussels to participate in the important EU Summit, Prime Minister May sought to reassure the rest of the EU leaders that she is still in control of the situation back in the UK, despite her defeat in the House of Commons on Wednesday.
US Dollar – US Markets
The US Dollar lost ground 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, fell coming in at 93.55. The most important economic data releases for the day are the ones regarding US industrial production in November and the Baker Hughes oil rig count.
Two more senators expressed their opposition to the current GOP tax reform plan. Marco Rubio, who had been a presidential candidate in the past, said that he will oppose the current legislation, unless the GOP expands the proposed child tax credit. Rubio told reporters that “throughout the process, I have outlined the need to increase the refundable part of the child tax credit.” One more senator, Mike Lee from Utah said that he is currently undecided on the bill.
US retail sales surged more than expected in November according to a survey published by the US Census Bureau. Retail sales increased by 0.8%, exceeding expectations of a 0.3% rise. A 2.8% gain in sales in service stations contributed to the overall rise. The number of Americans who filed for unemployment benefits dropped to a 4 and a half year low. Janet Yellen, the Fed’s chair, said on Wednesday that she expects the labour marker to remain strong.
Euro – European Markets
The Euro strengthened against the US Dollar with the exchange rate set at $1.17. The European Central Bank (ECB) kept its benchmark interest rate on hold in its board meeting in Frankfurt, as it was anticipated by analysts.
The ECB’s governing council reiterated that it will continue running the asset-purchase programme (QE) until, at least, September 2018. The ECB’s president Mario Draghi declined to reveal his plans on whether the stimulus programme will continue beyond next September. The Italian banker admitted to reporters that the ECB suffered losses when prices of bonds issued by the retail company Steinhoff slumped. Draghi said that the Eurozone’s central bank stopped buying those specific bonds as soon as it learnt about the firm’s troubles.
Vitas Vasiliauskas, an ECB board member, said that the QE measures taken by the central bank are showing results. The Lithuanian banker noted that he doesn’t see the need for an additional QE programme in 2018, and stressed that the Eurozone’s economic growth is gaining momentum. Germany’s Bundesbank released a report in which its analysts said that they see a persistent high underlying German growth pace. Bundesbank also increased the inflation forecast for 2010 to 1.9%.
Other Currencies – Highlights
Sterling dipped against the Australian Dollar, trading at 1.74 AUD. Ian Harper, one of the members of the Reserve Bank’s of Australia board, told reporters that interest rates need to stay supportive of the economy. Harper noted that investment in non-mining industries is growing quickly, adding that strong government infrastructure spending is also helping the economy.
The Pound fell against the New Zealand Dollar, trading at 1.90 NZD. New Zealand’s Business PMI in November came in at 57.7. Economists said that the figure indicates the expansion of the manufacturing sector, which grew in every single month since October 2012. However, they stress that a pickup in inventory volumes could turn into a disadvantage if the demand slumps in the future.
Sterling slumped against the Canadian Dollar, trading at 1.71 CAD. Stephen Poloz, the Governor of the Bank of Canada (BoC), said that the BoC wants the economy to “run hotter” for a while in order to use up excess capacity.