The pound has kicked off this week with a small gain across the board as investors welcomed news that the European Council has endorsed Theresa May’s Brexit deal in a meeting yesterday morning that according to many reports, only lasted 38 minutes.
Jean-Claude Juncker, President of the European Commission warned that ‘’those who think that, by rejecting the deal, they would get a better deal, will be disappointed.’’ Our house view, as we have stated for some time, is that we expect parliament to vote against a deal in December with a second vote (potentially in January 2019) being successful. With both Theresa May and the EU adamant that there is no room to negotiate an entirely new deal, we believe that a second vote with a few amendments to the language included, would be approved by parliament.
Data wise, we await CBI data tomorrow, mortgage approvals on Thursday plus consumer confidence and house prices on Friday.
The Dollar Index traded with a 97 handle overnight for the first time since November 16th but has since retreated amid a broad improvement in risk sentiment. The Dollar finished Friday on the front foot despite some weaker data (PMI, Michigan Sentiment, jobless claims and durable goods) although trading volumes were light with many market participants away for Thanksgiving.
Looking ahead, key data releases due this week include consumer confidence tomorrow, GDP on Wednesday and PCE on Thursday.
The Euro touched its lowest level since November 16th overnight at $1.1327 but has since rebounded on some conciliatory remarks from Italian government officials regarding the budget dispute with the European Union – namely a willingness to negotiate on the deficit target. Next year’s target of 2% of GDP is being discussed by the governing coalition with sources saying PM Conte is willing to agree to the EU’s request.
Positioning data now shows broader optimism for the Euro, with net positions for the Euro making their highest weekly gain for more than two months.
German IFO data surprised to the downside this morning and may sap some strength from the single currency ahead of a flurry of ECB speakers today including President Mario Draghi.
Euro Zone M3 Money Supply on Wednesday, confidence indicators on Thursday and preliminary CPI data on Friday are releases of note this week.
USD/JPY rose to its best level since November 16th this morning at 113.36 as the Yen weakened on a rebound in risk sentiment across Asia and Europe. Recent comments from Bank of Japan Governor Kuroda were largely ignored although a soft manufacturing PMI print overnight could also be to blame.
Looking ahead, retail sales data are out on Thursday followed by Tokyo CPI and industrial production on Friday.
Domestic impulses were limited for the Swiss Franc last week although political uncertainties elsewhere continued to provide support. EUR/CHF briefly dipped below 1.13 on Friday for the first time since September 28th but has bounced this morning as European equity markets gained.
ZEW data is out Wednesday followed by GDP on Thursday and KOF data on Friday.
The Australian Dollar has risen versus its US counterpart this morning as oil prices and broader risk sentiment also rebounded from last week’s decline.
The Aussie Dollar had also been weighed down last week by comments from RBA Governor Lowe who said there is a reasonable probability that the current setting of monetary policy will be maintained for a while yet.
Construction work data is due on Wednesday, followed by new home sales on Thursday and private sector credit on Friday.
NEW ZEALAND DOLLAR
The New Zealand Dollar declined last week, weighed by the downturn in risk sentiment and steep losses in the oil markets amid a lack of domestic impulses. NZD/USD hit a near two-week low overnight after retail sales missed forecasts but has since rebounded.
Investors will be watching the RBNZ closely amid speculation they could loosen mortgage restrictions this week. Trade figures are out tomorrow followed by building consents and ANZ confidence data on Friday.
The Canadian Dollar has strengthened this morning, again supported by a rebound in the oil markets which had prompted some notable volatility last week.
Domestic macro data also played its part with Friday’s CPI and retail sales beating expectations, providing some support.
GDP and producer price data on Friday are the only notable releases this week.
The Swedish Krona was weighed by the downturn in risk sentiment last week although emerged as the stronger of the NOK/SEK pairing as oil prices also slumped – NOK/SEK hit its lowest level since March on Friday.
Riksbank commentary also offered some support to the Krona as Governor Skingsley played down recent CPI fluctuations and offered few clues as to whether rates will likely rise in December or February.
Data releases due this week include PPI tomorrow, retail sales on Wednesday and GDP on Thursday.
USD/NOK surpassed 8.6 on Friday to trade at its best level since May 2017 although it has retreated this morning as European cash equity markets bounced.
Retail sales and unemployment figures are both due for release on Friday.
To discuss currency risks that may affect your business in 2019 and 2020, please call us on 020 3876 5432 for a free consultation now.