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Politics not statistics

May's day

Logically, if the 52%-48% split in favour of Brexit represented the will of the people, last night's 63%-37% majority in support of the prime minister must surely represent the will of the Conservative party. Yet investors are not convinced that Theresa May's endorsement takes the Brexit process any further down the road.

What it does do, absent a successful confidence challenge by the opposition in Parliament, is it reduces the influence of Brexiteers. It therefore makes the no-deal scenario less likely and for that, investors rewarded the pound on Wednesday. All of those rewards came ahead of the vote. A win for Mrs May was generally expected and it turned into another example of "buy the rumour, sell the announcement".

Although it was pipped at the post by the South African rand, sterling was an average of 0.7% higher on the day against the other ten most actively-traded currencies. It added half a euro cent and picked up more than a cent each from the US, Canadian and Australian dollars and the Swiss franc.  However, it is still lower on every front than it had been on Monday morning before the government "postponed" Tuesday's Brexit vote.

Also on target

An unusually large proportion of Wednesday's ecostats came in close to analysts' forecasts. South African, Swedish and US inflation as well as the more-easily predictable Euroland industrial production were all there or thereabouts.

South Africa's consumer price index  was up by 5.2% in the year to November, a tick higher than expected. Swedish inflation was bang on at 2.0% and US inflation was on target at 2.2%. Overnight Britain's RICS reported falling residential property prices as its House Price Balance delivered a reading of -11%.

In Europe the EC's budget deficit squabble with Rome took a couple of interesting turns. Prime minister Giuseppe Conte at last bowed to Brussels' demands and reduced the planned deficit to 2.04% for 2019. At the same time the EC gave the nod to Emanuel Macron, who will probably increase France's deficit to more than 3% next year.  

EU summit

Britain's newly-reannointed prime minister will be back in Brussels today for the European Council meeting. She will be angling for concessions on the withdrawal bill which Europe has already rejected. For investors the main events are monetary policy announcements by the central banks of Switzerland, Norway and Euroland.

The Swiss National Bank and Norges Bank are fairly confidently expected to keep their benchmark rates unchanged at -0.75% and +0.75% respectively.  Investors are looking for something more substantial from the European Central Bank. The ECB gave warning several month ago that it would wind down its asset purchase programme by the end of this year and would begin to take interest rates higher after next summer. There should be confirmation today that quantitative easing has stopped. 

Theresa May's situation at the European Council meeting looks much less straightforward. She might have been successful at reapplying for her job but the "backstop" still plagues her efforts to take the Brexit bill forward.  Will the other 27 come to her aid?

GBP higher with PM's authority confirmed

GBP higher with PM's authority confirmed

EUR in second place on Italy budget compromise

EUR in second place on Italy budget compromise

ZAR leads narrowly following CPI and sales data

ZAR leads narrowly following CPI and sales data

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