Living in hope
Sterling had another good day on Tuesday, beating the major currency pack with an average gain of 0.6%. Given that it cannot have been the UK unemployment data that helped it ahead, it must have been the anticipation of a trade deal, however meagre, with the EU.
Although the Prime Minister’s last word on the subject was that a no-deal Brexit was very likely, and the EU chief negotiator believes the pathway to agreement is “very narrow”, it remains possible that a deal is within reach. That possibility took the pound forward soon after London opened and it continued its upward progress throughout the day, coming to a halt only when New York went home. Sterling’s gains include one and a quarter US cents, half a yen and almost one euro cent.
Today began with the UK consumer and producer price index data for November. The CPI numbers were all lower than forecast, with headline inflation down from 0.7% to 0.3%. The retail price index, which will be reformed dramatically in the future, was 0.9% higher on the year. Sterling edged upwards after the data came out but that was probably coincidence: slowing inflation normally implies a lower currency.
Stimulus still possible
In the States, Republicans took a decisive step when Senate majority leader Mitch McConnell acknowledged that Joe Biden had won the presidential election. The realisation could help Congress to reach agreement on the long-awaited fiscal stimulus package that has made no progress since July.
The two major parties are still at odds over which economic groups should receive help and which should be left to sink or swim. However, there seems to be a real possibility of an agreement before Congress breaks up for its Christmas holidays at the end of the week. Because an accord would be positive for the US economy, and contribute to overall investor confidence, it would be negative for the safe-haven dollar. The USD was consequently Tuesday’s weakest performer, losing an average of 0.3%.
None of the day’s economic statistics was of sufficient stature to get currencies moving. Canadian housing starts and manufacturing sales cancelled out one another, the first beating expectations and the second falling short. US industrial production was in line with forecast, rising by a monthly 0.4%.
Australia began the round of provisional purchasing managers’ indices with readings of 56.0 and 57.4 for manufacturing and services. Japan’s sub-50 readings would have been disappointing if they had come as a surprise.
By and large, the provisional PMIs from Europe are expected to be a little better than last month’s numbers but some of them will still be in the contraction zone below 50. Britain is pencilled in for manufacturing at 55.9 and services at 50.5 with the United States at 55.7 and 55.9.
A busy afternoon in North America begins with US retail sales and Canadian inflation. It carries on with the US NAHB housing market index and culminates in the Federal Open Market Committee’s monetary policy statement. The Federal Reserve chairman will hold a press conference this evening. Tonight brings third quarter NZ growth and November’s Australian employment data.