Good morning,

GBP – Breakthrough in Brussels

Within the past hour or so, both the UK and the EU have come to an agreement over the Irish border and it seems that negotiations can now move into Phase 2 which will allow the UK to begin putting together a Free Trade Agreement with the EU and, more importantly for sterling,

The deal is a classic bit of EU fudge however and is not the paean to certainty for trade and investment that Brexiteers will say it is. Within the text released by both parties the UK remains committed to North-South cooperation whilst guaranteeing against a hard border and that “the United Kingdom’s intention is to achieve these objectives through the overall EU-UK relationship”. That sounds like a post-it note saying “Fix Me”.

The text goes on to say that “Should this not be possible, the United Kingdom will propose specific solutions to address the unique circumstances of the island of Ireland. In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all island economy and the protection of the 1998 Agreement.” Effectively should no deal be signed then Northern Ireland remains part of the Customs Union.

This is the first of a great many UK/EU can kicks within these negotiations. Sterling won’t react positively in a meaningful manner until a transitional deal is agreed to stave off a cliff edge on March 29th 2019.

Yesterday was a quiet day for economic data, but today’s industrial & manufacturing production figures measuring the outputs of UK factories, mines and manufacturers, will give us a good indication for the UK’s manufacturing sector

USD – Jobs, Jobs, Jobs

We had some positive economic news from the US in the form of jobless claim numbers on Thursday. This came in lower than expected, meaning the number of people filing first time claims for unemployment insurance has dropped. This helped the dollar to a 4th consecutive day of gains, along with markets awaiting news on tax reforms and the monthly jobs report tomorrow.

The data releases tomorrow for employment and wages could be a massive factor to whether the Fed hikes rates or not this month. The market is heavily anticipating a rate hike at the next meeting so any shock surprise in the jobs numbers, could see a bad day for the dollar…. Every trader and their dog will have eyes glued to their screens tomorrow afternoon.

We expect that the US will have added 200,000 jobs in November.

The Day Ahead

We’ll be waiting for Westminster, Brussels, Belfast and Dublin reaction on this morning’s news to round out sterling’s performance for the week. While the payrolls report is the most important release for the US, the consumer confidence numbers for December may be able to give us a sign as to how Christmas on Main St will be.

Have a great day and a better weekend

Jeremy Cook, Chief Economist