8th January 2019 Market Update
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🇬🇧 GBP – Despite the return of Brexit discussions in Parliament yesterday, Sterling gained 0.4 per cent largely as a result of the ongoing Dollar weakness that has been prevalent at the start of the year. Looking ahead, investors expect the next two weeks to be very volatile for GBP/USD as we await the upcoming vote on Theresa May’s Brexit deal which has been confirmed for the 15th January. As a reminder, at present there looks to be very little chance of the deal going through, especially given that the DUP have already made clear that they would vote against it. That being said, in breaking news this morning – Leo Varadkar, the Irish Prime Minister has claimed that the EU is willing to give Britain reassurances about the Irish backstop before next week’s vote, which if true might yet help May’s deal navigate through Parliament. It is hoped these assurances, along with ongoing concerns of a ‘No Deal’ Brexit may yet help to appease dissenting MP’s in the Commons. Datawise, mixed signals as to the momentum in Britain’s economy continue to be overshadowed by Brexit concerns.
🇺🇸 USD – This week has seen the start of the planned trade talks between the US and China, which so far appear to be going well. The US has seen the unexpected arrival of Chinese Vice President Liu He as a positive sign as the Trump administration has said that they were optimistic they could reach a ‘reasonable’ deal that the US ‘could live with.’ As a result, yesterday saw the Dollar suffer as markets began to pull money out of safe-haven assets such as the Dollar, and into riskier ones. This has served to act as a continuation of Friday’s risk-on move which was spurred on by Federal Reserve Chairman Jerome Powell who explained that policy remained flexible as officials were ‘listening carefully’ to financial markets. Datawise, US data softened yesterday following Friday’s very positive jobs print as the US’s ISM non-manufacturing index dropped to a five-month low of 57.6, versus an expectation of 58.5. Looking ahead today, a televised speech by US President Donald Trump will be watched carefully for any further updates on the government shutdown which is now into its 18th day.
🇪🇺 EUR – The Euro was down this morning having gained 1.3 per cent over the past three days; similar to Sterling it has benefitted from the ongoing Dollar weakness. In terms of the fundamental strength of the Euro, growth and inflation in the Eurozone area has remained weak, well below the ECB’s target. As part of this, this morning saw German Industrial Production fell by 1.9 per cent MoM during November, missing expectations by a considerable amount, as we await more sentiment data out at 10am today. This is after Retail Sales data out yesterday saw a modest gain on the upside having slowed in Q3, as hopes were buoyed that consumer confidence could yet improve. This has also been helped by the fall in oil prices alongside an increase in wage growth which is helping real disposable income growth look pretty positive for Europeans. In terms of the rates, EUR/USD is currently towards the higher end of its short-term range, while longer term, May’s Parliamentary elections and ongoing Brexit woes have the potential to undermine any sprouts of optimism.
GBP: GBP/USD moves higher on the back of Dollar weakness as investors expect a return to Brexit related volatility;
USD: A positive start to US-China trade talks have seen a reduction in safe-haven investing, leading to a weaker Dollar;
EUR: Mixed data out of the Euro continues to paint a conflicting picture, as short and mid-terms risks remain.
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