Data-light day set to leave politics in focus

Today's news headlines:

  • ‘Fed pause expectations keep lid on Dollar’. Questions are now being asked as to whether the US Federal Reserve will hike rates at all in 2019. (Reuters)
  • ‘Sterling gains before parliamentary debate on Brexit deal’. However, traders expect the next fortnight to be volatile as the key vote nears. (Reuters)
  • ‘Eurozone retail sales climb for second-straight month in November’. Lower oil prices and rising incomes help buck overall economic trend. (Financial Times)

With limited economic data on the agenda for Tuesday, political developments stand to take on added significance in the near-term. Brexit remains very much in focus in the UK, with some politicians now bidding to limit government powers in the event of a no-deal scenario being reached. A vote on amendments to the finance bill will take place in Parliament today. The idea is that limits would be placed on the government’s ability to raise taxes and make other financial moves, should the UK crash out of the European Union at the end of March without Parliament having explicitly authorised the move. Although disruptive, success in this matter today may be sufficient to lend some support to Sterling at least in the short-term.

Trade talks between the US and China continue in Beijing, with President Xi’s top economic aide reportedly joining the meetings unexpectedly. There appears to be a mutual desire to strike a deal, although the US is on the back foot, with stock market turmoil and a government partially shut down owing to a funding dispute arguably giving China the upper hand. Currency markets are likely to look beyond this, and an accord has the potential to drive risk sentiment significantly higher, leaving the Dollar open to selling pressure.

The Euro has shown some notable volatility against the Dollar in the overnight session, selling off by around half a cent before initiating something of a reversion. So far there’s little to explain the move beyond an underlying market imbalance, although disappointing German Industrial Production data just released is serving to strangle the recovery. The overnight slide defies yesterday’s better-than-expected Eurozone Retail Sales data, although questions will now be asked as to whether this was simply erroneous and driven by falling fuel prices.

Eurozone Consumer Confidence data for December is set for release at 10am GMT. Given yesterday’s Retail Sales print, this reading will be under scrutiny as the market attempts to assess whether there has been a wholesale shift in underlying sentiment. Any suggestion that this is the case will reinforce the ECB’s stance over policy tightening, and in turn, will have the potential to bolster the common currency in the near-term.

US Consumer Credit readings for November, scheduled for 8pm GMT, will have the ability to provide some insight as to the impact of last year’s relentless string of rate hikes at the Federal Reserve. Expectations are for a significant decline to be posted, but if the print comes in even lower than expected, then it has the potential to add further weight to the idea that the Fed won’t be in a position to tighten policy further for some time yet. 

GBP/USD

Despite some overnight volatility, the Pound has now recovered recent losses against the US Dollar. Brexit will likely dominate GBP sentiment in the near-term, so success amongst politicians looking to corner Theresa May into being unable to settle for ‘no-deal’ could see gains for Sterling, although quite possibly only in the short-term.

EUR/USD

The Euro has so far failed to recover from the bout of overnight selling, and although yesterday’s fundamentals suggest this could well be misplaced, disappointing German Industrial Production data just released is dragging the pair lower again. Upbeat consumer sentiment data later today may have the potential to rescue some gains for the common currency.

GBP/EUR

An underperforming Euro through the overnight session is flattering Sterling right now. Further short-term upside for the Pound may be seen if politicians succeed in Parliament today, although arguably this also increases the chances of another general election being called. The accompanying uncertainty would likely do nothing to prop up the Pound.