Yesterday was arguably a case of more of the same when it comes to the ongoing saga of Brexit. The UK Government was by all accounts humiliated again, this time over the details of the legal advice it had received regarding the proposed Irish border ‘backstop’. As the debating continues, confusion rather than clarity appears to be building and there can be little reason to believe that next week’s vote will actually succeed. A no-deal Brexit may still be seen as unlikely, but there’s still a lot of work to be done if politicians are to be convinced.
US Markets were closed yesterday as the country observed a day of mourning for former President Bush, leading to the vast majority of economic releases being suspended, too. The Federal Reserve’s Beige book was however published as scheduled last night, and this showed signs of some modest deceleration in the pace of economy’s growth. Whilst it was insufficient to cause any meaningful reversal in the strength of the US Dollar, it does start to play towards that idea of the Federal Reserve being able to ease off on interest rate hikes in the New Year. The prospect of seeing one final quarter point hike before the end of the year remains unchanged.
UK Services PMI disappointed yesterday morning, showing that Brexit uncertainty was suppressing demand and unlike Monday’s corresponding manufacturing print, there is no benefit in stockpiling in this side of the economy. The size of the reversion – from an estimated 52.5 to 50.4 – underlines to what extent the lack of clarity over outlook is having on the economy and if this prevails then it could well contribute to pushing the country back into recession. This would again take a significant toll on the Pound.
There’s a flurry of economic data due from the US today, with the majority of yesterday’s releases being included, too. Stand-out prints are arguably going to be the ADP Payroll report for November at 1.15pm GMT. This is expected to show another month of healthy job creation, although at a slightly slower rate than was seen in October. The ISM Non-Manufacturing/Services Composite PMI print for November is also expected at 3pm GMT and again the market is expecting a modest decline to be posted here. Given the dollar index is trading close to recent highs here, any shortfall could pave the way for a degree of profit taking, although given the uncertain picture elsewhere, any downside may still prove short lived.
The Pound found some favour against the dollar in the early part on Wednesday’s session, although this proved to be short lived with disappointing data giving little reason to prolong the rally. Today’s US economic data may provide further upside for Sterling but uncertainty over Brexit is still likely to dominate.
There has been little overall direction during the last 24 hours. Further word on what could prove to be a softening of the rhetoric when it comes to the European Central Bank’s withdrawal of economic stimulus may have the potential to weaken the Euro.
The Pound is sitting a little way above recent lows against the Euro, although the lack of clarity over Brexit has the potential to keep Sterling under pressure. A change in the ECB’s stance over withdrawing stimulus measures would have the potential to provide some meaningful support for the Pound, despite Brexit uncertainty.