Sterling
The Pound put it in its strongest daily performance since 1998 yesterday.
Currency traders focussed on UK Prime Minister Theresa May’s announcement that both houses of parliament would get to vote on the government’s deal to leave the EU. Although the PM’s Brexit plans did appear to suggest a ‘hard Brexit’, investor fears were assuaged by the prospect of a parliamentary vote, which should tip the balance further away from an overly aggressive EU exit.
PM May confirmed that Britain would be leaving the EU single market and stated that the government would try to negotiate a new customs agreement to ensure the ‘freest possible trade’ while allowing the UK to ‘control the number of people who come to Britain from Europe’. The PM also suggested that Britain’s contribution to the EU budget would fall and signalled that the UK would rather leave the EU with no deal than a bad deal. This last statement, alongside recent comments from Chancellor Phillip Hammond, was interpreted by analysts as a threat to European leaders: give us a decent deal or we will slash corporation tax and form a veritable tax haven on the fringes of the continent.
Euro
The Pound to Euro exchange rate rallied by over two cents yesterday as markets reacted to Theresa May’s announcement that the UK’s new EU trade deal would be put to a parliamentary vote.
Having been the focus of traders’ attention for so long, the admission that Britain would be leaving the single market was taken surprisingly well. It seems that the series of leaks leading up to the announcement meant that investors were able to fully price leaving the single market into Sterling’s exchange rate.
It also looks like traders were pleased by the fairly comprehensive nature of May’s Brexit speech. Having been plunged into uncertainty since the morning of June 24, markets now have a vague idea of what Brexit might actually mean to the UK economy and this helped drive Sterling higher.
Also supporting the Pound was a better-than-anticipated UK CPI print, which showed that British inflation jumped from 1.2% to a two-year high of 1.6% in December.
US Dollar
‘Cable’ appreciated by over three cents yesterday as markets engaged in a ‘sell the rumour, buy the fact’ trade. Sterling had previously plummeted in reaction to rumours that Theresa May was planning to break away from the single market, but when the British Prime Minister actually announced the news that the UK would be leaving the single market, the Pound rallied in reaction to the fact as traders locked in profit.
The US Dollar was also weighed down by comments from President-elect Donald Trump, who has grown a reputation for himself by moving markets with his opinion alone. The ‘Greenback’ was the latest victim, softening across the board in reaction to an interview in which Trump claimed that the US Dollar was ‘too strong’.
Later today we have UK unemployment data, which is anticipated to remain at an 11-year low of 4.8%, and US inflation data, which is tipped to strike a two-year high of 2.1%.
Canadian Dollar
The Pound to Canadian Dollar exchange rate strengthened by around three cents yesterday as markets bought back into the UK currency following UK Prime Minister Theresa May’s Brexit speech.
Later today the Bank of Canada is set to release its monetary policy plans for January. The BoC is likely to strike a neutral tone, however, any surprise hints that interest rates could be hiked in 2017 could give the commodity-correlated ‘Loonie’ a boost.
Australian Dollar
Sterling rallied by around three cents against the Australian Dollar yesterday as traders reacted positively to UK PM May’s announcement that parliament would get to vote on Britain’s eventual post-Brexit EU trade deal. Despite the recognition that single market access would be forfeited, traders were cheered by the fact that parliament would get the chance to approve the deal as this was seen to reduce the chances of an extremely damaging new EU trade arrangement.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate jumped by around 250 pips yesterday as news of post-Brexit parliamentary approval bolstered the appeal of the UK currency. However, GBP/NZD’s gains could have been greater had it not been for an upbeat rise in the prices of New Zealand’s largest export. Dairy prices rose from NZ$3,463 to NZ$3,517 per tonne.
Data Released
09:30 GBP ILO Unemployment Rate (3M) (NOV) Medium 4.8%
09:30 GBP Average Weekly Earnings 3M/(YoY) (NOV) Medium 2.6%
10:00 EUR Euro-Zone Consumer Price Index (YoY) (DEC F) Medium 1.1%
13:30 USD Consumer Price Index (YoY) (DEC) High 2.1%
15:00 CAD Bank of Canada Rate Decision (JAN 18) High 0.50%