Good morning,

GBP: Vote postponed until the New Year

News that the ‘meaningful vote’ on Theresa May’s Brexit plan will not be put to the Commons this year has taken a bit of the risk out of sterling as we head into the close of the year. Obviously, this doesn’t negate the chances of additional downside for sterling. Between now and the return of Parliament on January 7th we think that sterling will grind around looking for direction as opposed to swinging and hooping around by multiple percent on any given day.

It comes as no surprise that Theresa May has been unable to extract much from the European Union at meetings in Brussels. Austrian Chancellor Kurz floated the idea of an EU summit in January which will likely prove useful given the likelihood that Theresa May’s Brexit plan is defeated somewhere between the 7th and 21st of January.

Sterling remains close to its 20-month lows against the USD this morning.

EUR: ECB meeting taken dovishly

The European Central Bank meeting yesterday took some of the air out of the single currency as Mario Draghi’s comments were taken a little dovishly¬†by the market. He has to acknowledge the realities of slower global growth, trade tensions and that Eurozone inflation and growth numbers have come in below expectations. However, he is not being overly dovish himself so I’d be surprised if the euro weakens materially through the rest of the week.

USD: As yet unaffected by tariffs

US industrial production and retail sales numbers are due and will bring the data week to a close. Once again we believe it to be too early for the economic data to show the effects of either business moving operations abroad to avoid tariffs, or higher tariffs dissuading consumers from shopping. Both data points are expected to deteriorate in the New Year, something that should be delayed by President Trump confirming that a planned 25% increase in tariffs on a number of imported goods is to be delayed. Reports suggest that he’ll put that in writing by the end of the day.

While that may not offer much new support for the US dollar, both data points should be good enough to maintain dollar at current levels.

CNH: Data not offering support

While some markets may have been hopeful that the CNH could be strong enough to drive ever onwards and away from the 7.00 level, last night’s run of data has not been supportive. Chinese industrial production slowed below all estimates with retail sales disappointing.

Manufacturing numbers are unlikely to improve anytime soon we think; manufacturers have been running above capacity recently in order to get exports out the door before tariffs and other trade barriers are imposed. We see that impulse slackening in the coming months and pressure remaining on the yuan as a result.

Have a great day and a better weekend.