Sterling has surged higher this morning, although the move does not appear to be clearly linked to a specific headline or development. Donald Trump has arrived in the UK for a NATO summit, with various newspapers reporting that the Conservative party is aiming to avoid focusing much attention on the visit or on any contact between the President and Boris Johnson. Labour, in the meantime, is seeking to do the opposite, with Jeremy Corbyn releasing an open letter to Donald Trump demanding assurances that the NHS will not be included in any future UK-US trade deal. Polls released this week have showed a high variance, for example with ICM yesterday showing Conservative-Labour share at 42-35 and Kantar showing 44-32. This morning saw the release of the Construction Purchasing Managers Index, which rose to 45.3 in November, still below the 50 level that indicates growth in the sector.
The euro rallied yesterday afternoon and overnight, trading higher against the US dollar and sterling. Christine Lagarde’s testimony to European lawmakers passed largely without incident, with the European Central Bank head promising “resolute” commitment to price stability. Elsewhere, the head of the Austral National Bank told MNI that he believed Lagarde would be more receptive to the arguments of ECB hawks than her predecessor, Mario Draghi. Yesterday’s euro rally persisted against the US dollar, despite threats from the Trump administration to levy high tariffs on French imports due to the nation’s internet tax. The French reaction to the threats has been ominous, with France’s finance minister vowing that the EU will retaliate with a “strong riposte”. Eurozone producer prices will be released at 10:00 GMT.
The US dollar is broadly weaker this week, as the Trump has returned to form over the past 24 hours with a series of threats and statements that have impacted various markets. Late last night the administration threatened to raise tariffs on French imports, in response to a digital tax levied in that country. Elsewhere, Wilbur Ross said yesterday that if the right trade deal with China was not struck, the US would proceed with the imposition of further tariffs on December 15th, supposedly a good time to implement tariffs due to the date coming too close to Christmas to harm consumer spending. Chinese state media reported that authorities would soon be issuing a list of “unreliable entities”, possibly leading to sanctions against US companies. If talks do break down and tariffs are raised by December 15th, the implications for global markets are likely to be seismic after months of complacent optimism.
The loonie was relatively quiet yesterday and overnight, ahead of tomorrow’s Bank of Canada meeting and the week’s OPEC summit. With both events likely to provide relevant new information for the loonie, price action today will likely continue to be dictated by developments in the US dollar and in crude oil markets.