The divorce deal of Britain from the EU made its final pass-through in the House of Commons yesterday in a generally uneventful manner. Ratification of the legislation in the House of Lords next week is nothing but a given fact as well. Sterling relief on the back of a smooth Brexit transition on January 31st has been largely priced in since Boris Johnson electoral win a month ago, capping the extent of pound’s gains yesterday. In turn, Carney’s comments early in the session determined sterling’s negative overall performance in the day. BoE’s chief remarked the ample policy space available in the economy while debating the favorable effects of monetary stimulus in a continued period of uncertainty. All in all, BoE’s headroom to boost the economy might be in the neighbourhood of the 250 basis points when combining both traditional and unconventional policy tools. The next policy meeting on January 30th will have investors on the edge of their sits for new signs of potential policy shifts.
The single currency closed flat against the greenback yesterday after shortly visiting new lows of the year. Although the move lower could be largely described as part of the general position clear out following the calm in geopolitical tensions, better than expected German industrial production in November did little to trigger the reversion of the pair. Positive industrial production data in other large EU economies have also had a muted impact on the cross this morning, as all eyes are placed on the US nonfarm payroll print later in the session.
Recent US-Iran tensions have somewhat eased in financial markets, despite headlines this morning suggesting that a Tehran missile could have been responsible for the Ukrainian plane crash last Wednesday. The USD outperformance this week might extend later today as investors focus on the December’s nonfarm payrolls figure to be released at 13:30 GMT. The print is expected to show a solid increase of 160k jobs, which would add up to more than 2 million new jobs created in 2019 in the US economy. This is more than what economists expected a year ago, yet the slowest pace of job gains since 2011 amid trade tailwinds. Downside risks for payrolls are not ruled out yet after the exaggerated surge in November of 266k additions.
The loonie continued to weaken yesterday against the USD, on the back of corrected WTI oil prices following US-Iran stand down. Comments from Bank of Canada’s Governor ahead of a “fireside chat” in Vancouver yesterday, were aligned to Poloz’s neutral stance of last. Canada currently holds the highest policy rate among major advance economies at 1.75%, despite GDP is estimated to drop about 1% last year due to trade conflicts. Yet, near target inflation and the elevated household debt in the country, keep preventing the CB from adding stimulus to the economy. Recent upward revisions to investment data might prompt the medium-term outlook for Canada, but ongoing trade conflicts are still the main source of uncertainty for the economy. December labor data at 13:30 GMT will be pivotal for loonie’s price action today. Expectations are for unemployment to revert to 5.8% from 5.9% earlier and for 25k jobs to be added.