Brexit ‘progress’ fails to boost Pound

Today's news headlines:

  • ‘Trump slams Fed on eve of rate meeting amid “very strong” Dollar’. The US President rails against the idea of another rate hike. (Bloomberg)
  • ‘Eurostat cuts Eurozone November inflation estimate’. Inflation falls faster than forecast as fuel prices ease. (MarketWatch)
  • ‘May says Brexit talks will go into 2019 as she fights for deal’. Delay risks vote of no confidence in the British Prime Minister. (Bloomberg)

Yesterday’s quiet session for currency markets even failed to find any meaningful traction off the back of Theresa May’s announcement that Brexit debates would resume after the New Year break, that Parliament would vote on the bill soon after, or even that the opposition leader Jeremy Corbyn had tabled a vote of no confidence in the Prime Minister’s leadership. After last week’s volatility, Sterling could perhaps be best described as becalmed, while volatility for both the Euro and US Dollar also proved to be thin on the ground.

German IFO data is due for release at 9am GMT this morning, which includes the forward-looking Expectations reading for December. The market is expecting to see a modest softening, but anything much below the target could serve to undermine the recent recovery seen in EUR/USD. With the European Central Bank (ECB) having called time on its bond-buying stimulus measures, the business climate will inevitably start to get more challenging. In addition, the central bank acknowledges the fact that risk to economic growth remains on the downside, so with this backdrop of pessimism in play, today’s reading could fall short of expectations.

The US Dollar appears to be waiting for tomorrow’s comments from the Federal Reserve to find further direction. Despite the protestations of Donald Trump, the Fed is tipped to push ahead with its fourth rate hike of the year, but it’s going to be accompanying notes over the policy outlook for 2019 that stands to provide the greatest momentum. Any suggestion that the relentless pace of policy tightening will be sustained in a bid to rein in consumer spending will have the potential to drive the US Dollar higher, although with cracks starting to emerge in US housing data, such an argument could prove difficult to justify.

With the release of US Housing Starts for November expected at 1.30pm GMT, further clarity could emerge. The month-on-month figure is still expected to be growing, but at just 0.2% versus the 1.5% seen a month ago. Numbers like this could be used to argue that, assuming the Fed do push ahead with the rate hike this week, then it’s time to pause for breath once they reconvene in the new year.

GBP/USD

Sterling found some modest support against the US Dollar during yesterday’s session, with a  little more clarity over the resumption of the Brexit process lending support and lifting the pair by as much as three quarters of a cent at one point. However, political grandstanding—and accompanying political risk—does remain high on the agenda, while from a technical perspective, suggestions abound that the pair could still plunge below recent lows.

EUR/USD

Markets witnessed a rangebound session for the Euro against the Dollar, although some weakness has been creeping in. The Greenback maintains the upper hand given tomorrow’s expected rate hike, but anticipation that German data could disappoint this morning is also dragging on the EUR/USD pair.

GBP/EUR

The Pound dipped briefly lower in thin Asian trade last night but has since recovered. However, any upside is finding itself capped, with Brexit uncertainty still dominating. Even if German data disappoints today, Sterling may remain on the back foot.