Good morning,

GBP: Nobody has the votes

BBC Parliament is rapidly replacing Bloomberg as the channel of choice on the TVs here at WorldFirst HQ as politics continues to keep the pound at depressed levels. Sterling has not really reacted to the news that Jeremy Corbyn has called a confidence vote in Theresa May as Prime Minister. Note that this is a confidence vote in her, not in her government and therefore has the constitutional weight of a parish newsletter. The threat of the vote did bring the news that the delayed ‘meaningful vote’ on Theresa May’s Brexit plan will take place during the week commencing January 14th.

Whether this move to censure the PM is a stepping stone to a wider confidence vote only time will tell but the opposition parties still don’t have the votes given the need for a two-thirds majority. We don’t think there’s much to go on now before Christmas from Westminster although calls are growing for politicians to cut their recess short and begin debates again on January 2nd as opposed to the week beginning January 7th.

There is no sterling data today so any pound upside is likely to come from weakness elsewhere.

USD: Fed to defy Trump

The dollar continues to weaken as fears grow that the Federal Reserve will not hike interest rates tomorrow. The economics of the US make it a sensible decision to raise the cost of borrowing in the US tomorrow evening and to not do so would almost certainly add more negativity to global investment sentiment than otherwise. A decision to hold off would prompt fears over the domestic and global outlook but also raise concerns about the independence of the central bank.

Last night President Trump tweeted “It is incredible that with a very strong dollar and virtually no inflation, the outside world is blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike. Take the Victory!”

We have always maintained that President Trump down not really know what he wants – on a lot of things – but economically sees that both a strong dollar and low interest rates as ideal. Things don’t work like that and his opposition to raising interest rates are as much a function of his time in real estate as anything.

The Fed will raise interest rates tomorrow and then guide that the outlook looks more uncertain in 2019 than it did six months ago, possibly adding some dollar weakness that has emerged in the past week.

AUD: No new wave, no fun

China’s President Xi held back from announcing new reform measures in his speech overnight, sending regional trade and commodity focused currencies lower.

Also, in the minutes of its last policy meeting for the year, the Reserve Bank of Australia told markets of its fears, highlighting a “generalised tightening of credit availability” in the economy.

“The outlook for household consumption continued to be a source of uncertainty because growth in household income remained low, debt levels were high and housing prices had declined,” the central bank noted. “Members noted that this combination of factors posed downside risks.”

For now, have a great day.