Sterling seesaws on Brexit news, Euro slips on weak retail sales

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6 December 2017

thomasdodds

T
he Pound sold-off by around half a percent against the US Dollar during early morning trading on Tuesday following news on Monday that Theresa May had failed to strike a deal with the European Union. Comments from Philip Hammond that talks were progressing well had, however, provided reason to be optimistic and Sterling ended trading more-or-less unchanged.

The currency had earlier briefly dipped back below the 1.34 level following the release of fairly disappointing services PMI data that suggested the outlook for the UK economy remains mixed. The monthly index slipped to just 53.8 in November from October’s 55.6, comfortably below expectations. This bodes ill for overall GDP growth in the final quarter of the year, given the sector accounts for over two-thirds of economic activity in the domestic economy.

Brexit developments will continue to be the main driver for the Pound ahead of next week’s crucial European Council meeting. The next economic data releases of note will be Friday’s industrial and manufacturing production figures.

Dollar edges higher on tax reform optimism

The US Dollar index edged modestly higher yesterday, ending London trading almost half a percent up. Traders continued to look favourably on the greenback amid growing optimism surrounding the proposed US tax reforms from the Trump administration and its potential to boost growth in the country. While the tax reform process is likely to be a drawn out one, and even though there are still differences between the House and the Senate, leaders are reportedly keen to get a deal done. It should now be a matter of time before a final proposal is passed onto Donald Trump for his signature.

Aside from developments on US tax reform, investors will have the small matter of the November nonfarm payrolls report to digest when it’s released on Friday afternoon. Another impressive level of jobs creation is eyed around the 200k mark. In the meantime, this afternoon’s ADP employment change number could give us a decent indication as to the strength of Friday’s report.

Eurozone retail sales slump by most in four years

A very disappointing set of retail sales figures in the Eurozone was enough to force the Euro to its weakest position in two weeks against the greenback yesterday. Sales were unexpectedly soft in October, declining by a massive 1.1% on a month previous and growing by a mere 0.4% on the same period last year, far below the 4% jump recorded in October. This marked its largest monthly decline in the measure since the end of 2013 and could stop the Euro-area economy in its tracks following a very impressive few months that saw it expand by the most in six years in the third quarter.

The ECB’s non-monetary policy meeting will not shift the currency markets today and investors will be far more concerned with the Bank of Canada’s December statement at 15:00 UK time.