Sterling had a strong start to the week, as optimism continued to build that a no-deal Brexit can be avoided and surprisingly firm labour market data was released. The Office for National Statistics released labour market data for November which showed the Unemployment Rate had fallen back down to 4.0% while wage growth was at a post-recession high. This prompted a 0.5% rally in sterling as Brexit news flow remains subdued until next week. Meanwhile, the former Chancellor of the Exchequer, George Osborne, took to the stage at the World Economic Forum in Davos yesterday and stated that in his belief an extension in Article 50 was the most likely option. Little top-tier data is pencilled in for the pound but renewed optimism may cause it to continue floating upwards until the next substantial Brexit headline hits.
The euro proved as flat as a pancake against USD for the second day in a row, with intraday volatility proving exceptionally low on the pair and action stemming only from the rest of the G10. The ZEW German economic survey showed a dramatic plunge in December’s current situation index upon its release yesterday morning. Spring may still be coming, though, as the expectation index is stabilising, which points to higher hopes for 2019 Eurozone growth. This theme was reflected earlier in the uptick in German and Eurozone equities this month, though it is, of course, important to first see the hard data improving in the bloc before one can speak of a turnaround of momentum. A further sign of a thawing in conditions may be seen in Eurozone Consumer Confidence, out at 15:00 GMT. The stable pricing of EURUSD may continue today, but with preliminary manufacturing and services data released from the slowing Eurozone powerhouse that is Germany tomorrow, further negative shocks may be forthcoming.
The greenback had a mixed day on average yesterday performing well against commodity sensitive currencies such as AUD and CAD but posting losses against JPY and GBP. The government shutdown seems to be an issue far from being solved in a short-term horizon as competing legislations keep battling in the US Congress. Tomorrow, the US Senate will vote on a Democrat´s proposal to reopen the government until February 8th, providing a time lapse to manage the crisis. Trump´s proposal on a $5.7bn budget for the border wall, on the other hand, has also been put forward for scrutiny. Meanwhile, US-China trade talks turned somehow grey, after Trump´s administration refused to meet with Chinese ministers for prep negotiations ahead of the high-level meeting at the end of the month.
The loonie had the second slump-day in a row as renewed trade pessimism and a 3% drop in WTI crude oil prices banded together against the currency. Dismal Manufacturing Sales then definitely did not come to the aid of CAD, contracting by 1.4% November, which likely lowered estimates of Q4 growth. Lower sales of oil and coal products were the culprit of this, a single data point that confirms the narrative that global demand for fossils is slowing down at this point in the economic cycle. Today sees the Retail Sales at 13:30 GMT, which will show how much appetite for consumption remains among Canadians despite their record 175% household-debt-to-Gross Domestic Product ratio.