Brexit Agreement passed by Parliament
23rd December: Highlights
- Sterling finds some equilibrium
- Strong data supports dollar, further rate cuts unlikely
- ECB determined to wait out the “slowdown
31st Jan departure now certain
The pound had a turbulent week opening on a high as the result of the election was celebrated. That was until the realization set in that an unfettered Brexit favouring Government had a mandate to tear up any agreement over trade which could lead to the return of “no-deal”. The pound retreated rather rapidly once the ramifications of an eighty-seat majority sunk in.
The Queen’s speech which traditionally opens a new Parliament was held on Friday and contained no surprises. The election pledges about a greater net cash infusion into the National Health Service was confirmed in law although there was a little more ambiguity about social care.
The Government now needs to slip out of campaigning mode, telling the public how they can be trusted, together with various other rhetorical comments and get on with the tasks at hand particularly once the trade talks with the EU get under way.
The pound traded between 1.3422 and 1.2989 against the dollar last week echoing periods of greater volatility. It closed at 1.3004 and unless there are any unexpected events, it is unlikely to move far from that closing rate before year end.
GDP and Inflation confirm FOMC projections
The Fed’s preferred measure of inflation, Personal Consumption Expenditures was released, and the headline was something of a mixed bag. While inflation remains at 2.1%, above the Fed’s 2% target, it was considered likely that the recent rate cuts may add to inflationary pressure but that was not the case.
The dollar’s dual purpose of being a domestic currency and the global reserve has added some confusion, particularly over the trade talks since the agreement of Phase One. This has been both good for the dollar from an economic point of view but also (and possibly more) beneficial to the single currency.
Given the expectations for growth and the steady rate outlook, some commentators are considering a further rally for the dollar early in the New Year but the market has been so unpredictable with several factors pulling currencies in many directions at once that until a pattern emerges, traders may start the year in cautious mode.
Last week, the dollar index traded between 97.76 and 96.93, closing at 97.69.
Effect of trade negotiations to be major driver
There is a rumour that the release of individual economic data for the individual states is considered counterproductive and since the data is collected in a uniform manner that just overall data for the entire Eurozone should suffice.
Such a rumour may not help the single currency since there will be a high degree of speculation that something is being covered up. It may be too early for the Eurozone to be able to produce only overall data as analysts consider the region to be so unbalanced that certain countries may be struggling, and their economies may be more important overall than others. Of course, Germany is one such example.
The euro traded between 1.1175 and 1.1066 last week as it gave back most of its recent gains. It closed at 1.1077.
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”