The Pound strengthened last week as Boris Johnson and the Conservatives won a majority in the election, offering some certainty to the UK’s future and its exit from the EU. Johnson will welcome 109 new Conservative MPs into the House of Commons today, and the party is expected to put its Brexit legislation to Parliament ahead of Christmas, which could allow the UK to leave the EU before the end of January 2020. The Bank of England will publish its Financial Stability Report today, before influential UK labour market data prints tomorrow, and a speech by BoE Governor Mark Carney. Wednesday could be another prominent day with UK inflation due out, followed by the Bank of England’s interest rate decision on Thursday.
The UK election result last week pressured the Euro exchange rate to a near three-and-a-half-year-low as Sterling rallied across the board. Meanwhile, new European Central Bank President Christine Lagarde didn’t surprise markets in her first monetary policy decision—rates kept on hold—and follow-up press conference. However, the new central bank Chief did suggest that the ECB’s strategic review of policy would be an extensive exercise and that a new task force would be formed to create a ‘digital Euro’. Downbeat economic data from France and Germany has weighed on the Euro’s fortunes this morning, and economic data will remain in focus moving forward.
Last week, China and the US announced it had reached a phase one deal just before the 15th December tariff increases could be triggered. US President Trump has axed the proposed increase, and cut the September goods tariff from 15.0% to 7.5%. Additionally, the Federal Reserve opted to keep interest rates on hold, with no inclination to increase rates again anytime soon after three recent rate cuts. Projections released after the decision showed most policymakers feel that the current level of rates is accommodating enough to stimulate growth—something that could see the Fed hold rates through 2020. Friday might be the most influential day in terms of data, with the US growth and inflation indicator stats due out. A plethora of other ecostats will be published throughout the week, which could encourage some USD movement. Still, a lot of US Dollar strength could come from risk appetite and developments in geopolitics.
The Australian and New Zealand Dollars benefited last week on news that the US and China had reached a trade deal to prevent further tariffs. Both the Aussie and Kiwi Dollars were able to climb versus the US Dollar on the news. This kind of breakthrough can see an increase in risk appetite, but last week's news didn't bolster riskier assets as much as some may have expected. However, both Trans-Tasman currencies slipped against the Pound as the UK election result hit markets.
New Zealand growth data will be out in Wednesday’s Oceanic session, with expectations for an increase from 2.1% to 2.3% in the third quarter on the year—something that could boost the Kiwi Dollar. Australian labour market data will also be out on Thursday. While unemployment is expected to remain steady, the nation is forecast to have seen an increase of 15K people in work in November, in stark contrast to the -19K contraction the month before. Ecostats showing strong job gains could bolster the Aussie.
The Canadian Dollar reached a five-week high last week but edged slightly lower on Friday. The price of oil—Canada’s largest export—hit a near three-month high after news of the US-China trade progress and the UK general election result. Last week, Bank of Canada Governor Stephen Poloz also said that recent weakness in the Canadian labour market would be unlikely to weigh on future interest rate decisions. Canadian inflation data will be out for release on Wednesday, and influential growth data will be out on Monday 23rd just ahead of Christmas. Other data out in the week ahead include Retail Sales, Existing Home Sales, and the New Housing Price Index, which could give the Canadian Dollar some opportunity for moderate movement.