26th November 2018 Market Update
Get a snapshot of the day’s most important market events and currency movements sent straight to your inbox every morning. Sign up to our Daily Market Report.
🇬🇧 GBP – Sterling was surprisingly static this morning despite the approval of a Brexit Deal by the EU yesterday, as its 27 leaders approval took the next step to ‘pave the way for an orderly withdrawal.’ The reason for this is that a lot of the talk on Friday was that a deal was always likely to be approved, despite the ongoing questions around EU Fishing Rights and impact any deal would have on Gibraltar; meaning a big move up in Sterling was partially priced in. As far as what was agreed yesterday, the EU approved the 599-page withdrawal agreement which is the legally binding document setting out the terms of the UK’s exit from the EU, including the UK’s £39bn ‘divorce bill.’ In addition, the EU agreed the ‘political declaration’ that sets out what the UK and EU’s relationship may look like after Brexit. In addition, the main reason for the muted impact on Sterling this morning is that the market remains very concerned about the ability of this deal to pass through a vote in the House of Commons, which has been pencilled in for December 11th. In terms of numbers, May needs to win a simple majority of 320 votes (assuming no one abstains) but given that yesterday the Sunday Telegraph reported that 91 Conservative MPs were against the agreement – any passage is looking nigh on impossible at present. While these MPs are unlikely to budge on their stance, May will point to the words of Jean Claude Juncker who said that anyone who thinks that this deal can be renegotiated would be “disappointed” as he reminded British MPs that “this is the best deal possible and this is the only deal possible”.
🇪🇺 EUR – The Eurozone economy continues to show weakness in Q4, meaning that the quick bounce back in growth that the European Central Bank had been hoping, for now, appears increasingly unlikely. This is after Eurozone composite PMIs dropped to an almost four-year low in November, from 53.1 to 52.4 as growth in new orders remains slow. In addition, German PMI also dropped to an almost four-year low in November which means that Eurozone annual growth for 2018 is unlikely to reach 2 per cent. Separately – Italian Deputy Prime Minister Matteo Salvini hinted yesterday that he would be open to the possibility of tweaking the country’s deficit goal for next year in a move that could open talks between Rome and Brussels in the hope of avoiding a disciplinary procedure against Italy. Looking ahead this week, inflation data will be a key highlight for the Eurozone; at present, it stands at 2.2 per cent, just above the Central Bank’s target, although the recent drop in oil prices will no doubt have an effect going forward. In addition, this week will see fresh comments from the ECB President Mario Draghi who may shed further light on the ECB’s monetary policy outlook amid slowing growth.
🇺🇸 USD – The US Dollar had a good week last week as it appreciated against all of its major currency counterparts, allowing it to make its most significant weekly gains for a month as the continued global ‘risk off’ environment is keeping the greenback well bid. As part of this, last week we saw risk appetite decline following a steep drop in oil prices which included a 6 per cent fall in USD oil futures, causing investors to rotate their money into the relative safety of the Dollar. Prior to this, the Dollar had been coming under pressure after some of the recent US economic numbers came in weaker than expected causing several Federal Reserve officials to strike a cautious tone on the economy. Looking ahead this week, the big event for the Dollar which is also contributing to the ‘risk off’ environment is the ongoing tensions between the US and China; these may come to a head this week when Donald Trump and Xi Jingping meet at the G20 Summit which begins on Friday. As things stand, if there is no agreement – Washington is set to raise tariffs on $200bn worth of Chinese imports from 10 per cent to 25 per cent; this would cause greater market uncertainty and likely increase the demand for the safe haven Dollar.
GBP: Despite EU agreement of Brexit deal, Sterling remains fairly muted due to the unlikelihood of such a deal passing through Parliament;
EUR: Eurozone data continues to come out weaker than expected while Italian PM Matteo Salvini indicates he is open to negotiate on controversial Italian Budget;
USD: The Dollar continues to benefit from ‘safe haven’ demand amidst sell-off in oil as well as ongoing US-China trade tensions
Find out more about our Money Transfer service for personal & business international payments. We’re committed to giving all clients the best rate possible, along with flexible and personalised service. Save time and money by reducing risk through a simple and efficient service.