Sterling
The Pound continued to attract support on Friday as fears of a ‘hard Brexit’ receded. Remarks earlier in the week from ‘Brexit’ Secretary David Davis suggesting that the government was prepared to pay into the EU budget in exchange for access to the single market were the main driving force behind Sterling’s strength. Demand was also stoked, to a lesser extend, by news that pro-EU Liberal Democrat Sarah Olney had won the Richmond Park by-election.
The Pound was barely moved by data showing that UK construction output rose from 52.6 to an eight-month high of 52.8 in November.
Euro
The Pound to Euro exchange rate appreciated by over a cent on Friday to reach its highest level in almost three months.
With Donald Trump’s shock election victory in the US helping to shift traders’ attention from the potential negative impacts of ‘Brexit’ to the threat of populist nationalism tearing the European project at the seams, Sterling has now posted five consecutive weeks of gains versus the single currency. GBP/EUR’s strong performance of late marks the best run for the Pound for nine years.
And Sterling registered a further 100 pips on Sunday evening to hit its highest level versus the Euro since July when a stinging defeat in a constitutional referendum prompted Italian Prime Minister Matteo Renzi to declare his resignation. The announcement raises the possibility of early elections next year, which potentially could see anti-EU group the 5-Star Movement assume control of the currency bloc’s third largest economy. With the Euro once again dogged by existential threats we could see further turbulence in GBP/EUR over the next few days.
US Dollar
Sterling rallied by around a cent against the US Dollar over the weekend, despite a relatively sturdy US labour market report on Friday afternoon, which left the door firmly open to a Federal Reserve interest rate hike this month.
The US non-farm payroll report showed that 178,000 jobs were added to the world’s largest economy in November, up from 142,000 in October. The latest batch of job creation took the headline unemployment rate down from 4.9% to a nine-year low of 4.6%, however, details showed that the dip in the jobless rate was linked to a decrease of 223,000 in the participation rate.
Demand for Sterling tailed off slightly following the Italian referendum as European economic sentiment was hurt by political instability.
Canadian Dollar
The Pound to Canadian Dollar exchange rate strengthened by around 150 pips on Friday thanks to the recent positive shift in demand for the UK currency. Oil prices continued to increase due to the recent OPEC production cuts, and Canadian unemployment tumbled unexpectedly from 7.0% to 6.8%, but it was not enough to halt the resurgent Sterling’s latest surge versus the ‘Loonie’.
Australian Dollar
The Pound ticked higher by around a cent against the Australian Dollar over the weekend. Whereas Sterling has benefitted over the last few weeks from bets of higher inflation, the risk-sensitive ‘Aussie’ has suffered markedly from bets that Trump’s reflationary policies could prompt a bout of monetary tightening in the US. The problem for the Antipodean currency is that higher borrowing costs in the US combined with a lower yield differential could significantly reduce the appeal of the Australian Dollar to international investors.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate appreciated by almost two cents over the weekend as risk sentiment dried up and investors reacted to a shock political announcement in New Zealand. Prime Minister John Key shocked traders by announcing his resignation on Sunday evening, citing family reasons for the unexpected decision. The news weighed on the ‘Kiwi’ due to the shock factor and the threat of instability if a new leader is not decided upon swiftly.
Data Released
09:30 8h 15m GBP Markit Services PMI (Nov) 1 54.2
10:00 8h 45m EUR Retail Sales (MoM) (Oct) 1 0.9%
15:00 13h 45m USD ISM Non-Manufacturing PMI (Nov) 2 55.3