News & analysis

GBP

Sterling got hit quite hard this morning off the back of Donald Trump’s comments suggesting the Brexit deal “sounds like a great deal for the EU”. The President continued to voice concerns over the viability for the UK to negotiate a trade deal with the US, adding clout to the Brexiteer’s argument. Further risk has been added by newspapers such as The Times, who have stated that Brexiteers will support May’s deal if she gives a resignation date. All we know for now is that May will have a live debate with Jeremy Corbyn on December 9th, just days before the House of Commons vote is expected to take place. Further headlines regarding the likelihood of the deal passing through the commons to become legislation is expected in the coming two weeks.

EUR

“Markets cheer at hints of Italian budget breakthrough” is the headline press agency Reuters opens with today, which is true for Italian bond markets but hasn’t yet found its way to the FX sphere to prop up the euro. The single currency still trades below where it opened the week on Monday against the dollar this morning. Coinciding pressures from both the European Union and the bond markets pushed some compromising tones out of Deputy Prime Minister Luigi Di Maio, who said the planned 2.4% 2019 Italian budget deficit isn’t set in stone, as long as the flagship policies of the party are established. However, later on in the day, Prime Minister Giuseppe Conte, together with Deputy Prime Minister Matteo Salvini and Di Maio, issued a joint statement in which they said their objectives are already fixed. German Ifo Business Confidence meanwhile slipped in the background to a score of 102, as it reveals concerns about trade may further weigh on the growth prospects of Europe’s largest economy.

USD

USD broadly strengthened yesterday, moving closer again to the DXY dollar index 17-month high seen two weeks ago. The driver of the dollar strength can be sought in escalating trade tensions, as President Trump categorised it as “highly unlikely” that he will hold off on slapping another $200 billion worth of tariffs on Chinese goods. However, the dollar rally wasn’t as strong as it has been previously on the back of such trade rhetoric, a sign that markets start to view ongoing trade tensions not just beneficial to the dollar through safe haven flows, but also detrimental as it can do damage to the US economy. Federal Reserve Vice-President Richard Clarida speaks today at 13:30 GMT and as he was the Fed speaker who kicked off the outbreak of dovish doubts around the hiking path of the Fed two weeks ago, his words will be carefully weighted.

CAD

The loonie started to claw back some of its recent losses yesterday as oil prices began to bounce, but with momentum fading in the crude rally, the loonie eventually sold off to post further losses for the day. Details regarding General Motors closing its production plant in Oshawa started to filter too, further dampening the loonie’s prospects due to 2,500 jobs being lost. The direct macroeconomic impact of the closing of the factory may not be huge, but as car manufacturing is an important industry for the Canadian economy, it may negatively influence business sentiment.