After reaching close to multi-month highs last week, sterling is once more on the back foot this morning. Prime Minister Theresa May’s Brexit deal problems deepened on Friday, as strongly pro-EU Minister for Transport Jo Johnson resigned from the government. Despite being the brother of Boris Johnson, one of the figureheads of the Leave campaign, Johnson claimed that the current proposed Brexit deal diverges drastically from the vision of life outside the EU that had been marketed during the first referendum campaign, and thus another referendum should be called. Furthermore, an emergency Cabinet meeting penciled in for today had to be cancelled, and instead the Cabinet will next meet tomorrow, where the Irish backstop remains the main area of contention. If this morning’s reports of possible further minister resignations are to be believed, sterling will likely remain on the back foot into the beginning of this week. Economically, at least, it is not all doom and gloom, however, as Friday saw the release of the strongest quarter-on-quarter GDP growth in two years, with the economy expanding 0.6% increase in the three months up to September. Labour market data will be released on Tuesday, followed by inflation on Wednesday and Retail sales on Thursday.
After several weeks of brief rallies, the euro followed sterling lower and finally plunged to new lows today, reaching its weakest level against the US dollar since June 2017. Italy’s battle with the European Commission over its budget proposals looks set to intensify, as Deputy Premier Matteo Salvini remained defiant over the issue and said on Sunday that Italy could halt EU Budget decisions. Tomorrow ZEW survey data will be released, followed on Wednesday by German and Eurozone Gross Domestic Product figures.
The dollar remained well bid last week due to a lack of political backlash from the midterms hindering the dollar. The plunge in oil prices helped spur the dollar on last week as the broad dollar DXY index cracked a fresh 16-month high. The dollar generally underperforms in a climate of high oil prices, but due to the US granting a number of countries waivers to the Iranian sanctions, WTI crude has technically entered a bear market at just above $60 a barrel. Today is Veterans’ Day in the US and Tuesday’s calendar is somewhat sparse, but Wednesday and Thursday will see headline releases with the Consumer Price Index and Retail Sales released.
The loonie has slid off the back of the sharp oil price fall whilst the USD has benefited, putting USDCAD near 4-month highs despite strong economic data coming out of the Canadian economy. Signs emerged over the weekend that the recent crude oil rout has finally got the attention of OPEC, as Saudi Arabia said that it would reduce exports in December, indicating that reversal of the oil cartel’s production increase this year may be likely. The recent increase in supply for oil due to the White House granting waivers for Iranian oil to be exported to certain countries drilled oil prices down some 20% from this years high. With little in the way of data this week for the loonie, all eyes will be firmly fixed on OPEC’s reaction and where oil prices go from here.