Slide for Sterling continues as Brexit woes build

Today's news headlines:

  • ‘Brexit deal has “unattractive elements”, Cox admits’. UK Attorney General Geoffrey Cox pushes MPs to support Theresa May’s deal. (Financial Times)
  • ‘US factory activity jumps in November while construction spending falls for third month’. Mixed data comes as investors look for clues from the Federal Reserve. (CNBC)
  • ‘UK consumer spending slows in run-up to Brexit - industry data’. Online Black Friday sales failed to offset lack of confidence ahead of Brexit. (Reuters)

As the Brexit saga has unfolded, it’s been well recorded that any hint of certainty over the likely outcome has the ability to bolster the Pound. Conversely, a lack of clarity should be denting Sterling, so given the current situation which some say amounts to a constitutional crisis, it’s remarkable that the currency is holding up so well. Aside from the five days of debate which is scheduled to get underway in Parliament today, a vote will be held as to whether the government is in contempt of Parliament for failing to disclose the full details of legal advice it has received over Brexit. A UK government has never been found in contempt before, so losing this vote would throw open a wide range of scenarios, including Theresa May being subject to a vote of no confidence. Uncertainty like this has real scope to end up weighing heavily on the Pound, and in early Tuesday trade, this is being played out. 
 
Yesterday’s overshoot in the US ISM Manufacturing print for November has done little to help provide fresh insight as to how the Federal Reserve will act in 2019. While this number was countered by a very modest decline in the Manufacturing Purchasing Managers’ Index (PMI) for November, it still lends support to the idea that the US economy continues to expand at a pace that necessitates tighter monetary policy. Ultimately, despite political pressure to keep interest rates low, the Fed’s job is to keep a lid on inflation.
 
Overnight figures from the British Retail Consortium (BRC) have failed to provide any glimmer of upside for the Pound. Like-for-Like Sales for November fell by -0.5% against expectations of a 0.3% increase, illustrating that appetite for Black Friday sales was limited. This highlights consumer reluctance to spend given the overhang of Brexit uncertainty, suggesting that retailers could also be in for a disappointing Christmas. 
 
Bank of England (BoE) Governor Mark Carney addresses the Treasury Select Committee on the Brexit withdrawal agreement in the UK Parliament at 9.15am this morning. The Bank came under criticism recently on the basis that its forecasts for the financial impact of a no-deal Brexit may have been overly pessimistic. However, given the sheer number of unknown factors, attempting to predict the economic impact to 2030 or beyond is always going to prove challenging. Granularity from Mr Carney seems unlikely to prop up the Pound, given the far bigger constitutional issues facing the UK today. 
 
Data from the Eurozone is relatively low key in the hours ahead, although any lull will be short-lived with tomorrow’s data releases. The latest Services PMI and Retail Sales figures both have the potential to illustrate once again just how confident the European Central Bank (ECB) can be about starting to tighten monetary policy in the months ahead.

GBP/USD

The Pound sold off yesterday morning against the US Dollar and has failed to make any meaningful reversion since. Brexit woes will continue to weigh, although fresh hints that the Federal Reserve may soon give policy tightening a break could provide some upside. 

EUR/USD

The Euro is pushing back towards last week’s highs against the US Dollar, although with limited data due from the Eurozone in the short-term, again the potential for direction here is more likely to come from the US.

GBP/EUR

The Pound has hit its lowest levels in over two months against the Euro as Brexit uncertainty builds. Given the current situation in Westminster, the risk lies very much on the downside. Even at these levels, the cross remains well above the lows from the summer.