Good morning,

Quiet start to the Thanksgiving week

With a shortened week heading into the Thanksgiving weekend, focus has fallen on Washington. ABC is reporting this morning that Special Counsel Robert Mueller directed the Justice Department to turn over a broad array of documents this weekend. The focus of the investigations are to seek emails related to firing of FBI Director James Comey and the decision of Attorney General Jeff Sessions to recuse himself from the entire matter.

Unless progress is made on the tax bill however, gains for the dollar will be hardfought.

Coalition talks fall with the euro

German coalition talks to form a government have collapsed overnight sending the single currency lower and throwing the weight of political risk back onto the Eurozone. The centrist Free Democrats announced late last night that they were pulling out of the talks with Ms Merkel’s CDU/CSU party and the Greens.

This leaves Merkel in a sensitive position and moving forward further delays to the formation of a government will only cast further doubt on the single currency. She has a few options before her; she can attempt to renew her coalition deal with the centre-left Social Democrats although the SPD has ruled this out repeatedly, or she can simply elect to run a minority government seeking agreement on individual issues.

Of course, she could always call for a new election. The impact on Brexit however is not a positive one for the UK. While some may think this is an opportunity for the UK to say “give us what we want while you focus on your own issues” there is little reason to think that any of the German parties likely to form a government will change their remarkably uniform stance on Brexit.

Euro started the day lower but has recovered somewhat.

Waiting on the Budget

Brexit news over the weekend has been on the slim side and sterling has benefited from being out of the limelight a tad. Interviewed over the weekend Chancellor Phillip Hammond told the FT that “we are on the brink of making some serious movement forward in our negotiations with the EU, and starting to unlock that logjam so that people can start to see clarity about the future.” That may mean an agreement on the divorce bill and enough wiggle room to start talking about trade although those hopes have been dashed before.

Sterling focus will fall on Wednesday as it is the Budget and while the Budget has rarely been something that sterling had paid attention to – the austerity program blunted the positive impact of fiscal policy for many years – investors will be monitoring the announcement for signs of Brexit preparedness, political fatigue, changes to borrowing guidelines and how the government plans to drive investment.

Have a great day.

Jeremy Cook, Chief Economist