4th December 2018 Market Update
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🇬🇧 GBP – Sterling continues to suffer more than any of the world’s most impactful currencies as evidenced by the fact that it was the only currency in the G10 that did not benefit from Dollar weakness overnight [see below]. The causes for this all vary but ultimately fall under the overbearing umbrella of Britain’s exit from the European Union. As part of this, the latest updates yesterday had the Labour party threatening a full-blown constitutional crisis after the government were refusing to disclose the full extent of the legal advice it has received over Brexit. Presumably, Labour hopes the advice would indicate the severely detrimental nature of Brexit, which they could then use against the current government. As a vote on this is approaching, today also sees the start of the Parliamentary debate on the Withdrawal Agreement. This is likely to enhance and reiterate the divisions between and within the main political parties and provide further indication as to the uphill struggle that Theresa May is currently facing in terms of getting her deal over the line. In slightly more upbeat news, Governor Mark Carney is currently speaking in the House of Commons where his message seems to be that – under the assumption of the avoidance of a ‘No Deal’ Brexit, the BoE is preparing for further rate hikes given the encouraging state of the economy.
🇺🇸 USD – The Dollar fell to a weekly low this morning as the US-China trade truce helped to fuel the risk-on sentiment which encouraged investors to move money into riskier assets such as equities which were significantly up yesterday. That being said, we have since seen stocks stall this morning as the market appears to be losing faith as to the durability and longevity of the truce. The US and China have only 90 days to negotiate and come to an agreement on a number of issues and given that statements yesterday by various Trump officials provided very little clarity in terms of the specifics – the market appears to have lost a lot of the initial optimism that was felt towards the agreement emerging from Argentina’s G20 Summit. In light of this, Dollar bulls are looking at the next source of Dollar strength which is likely to come from any sort of indication from the Federal Reserve that they intend to increase interest rates later on this month. Fortunately, they may not have long to wait as tomorrow will see Chairman Jerome Powell give testimony to Congress as US economic data continues to provide solid justification for an increase in rates.
🇪🇺 EUR – The Euro is just one more beneficiary of yesterday’s Dollar weakness, without which – it appears to be running out of reasons to be positive following a continuation of weak economic growth in the Eurozone. This, in turn, has caused the market to question the likelihood of any further ECB tightening as we move into 2019. In other news, the Italian government have apparently waved the white flag and are now actively engaging with Brussels on their budget. As part of this, the European Commission’s Pierre Moscovici stated that this change is a ‘step in the right direction’ as talks have intensified around the Italian government’s willingness to reduce its proposed deficit from 2.4 per cent to 2.0 per cent in 2019. This is good news for the Euro as tomorrow, the powers that be in Brussels are intending to release plans to increase the use of the Euro in ‘strategic sectors’ such as energy, commodities and aircraft manufacturing in a bid to promote a ‘stronger international role’ for the single currency. Such a move could provide the change in fortunes that the currency is in dire need of as an increase in demand for the Euro internationally would likely see it strengthen significantly.
GBP: Carney maintains an upbeat tone on the UK economy, as MP’s prepare for the Parliamentary debate on the Brexit Withdrawal Agreement;
USD: Dollar weakness set to stay as faith in the longevity of the trade truce between the US and China is brought into question;
EUR: Italy waves the white flag in budget negotiations while Brussels look to increase the international use of the euro.
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