Over Christmas and into the new year, sterling went a long way towards repairing the damage wrought by the Prime Minister's insistence that Britain will end the Brexit transition period on the 31st December. There was nothing concrete to justify the change of heart with regard to sterling itself: a no-deal Brexit is still a possibility with all the uncertainty that entails. But the general mood in financial markets was more relaxed, largely thanks to the imminent "phase one" trade agreement between China and the United States. Since the morning of 24 December, sterling has strengthened by an average of 0.5%, beating all the other G10 currencies. It is up by 1.4% against the US dollar and 0.7% against the euro.
UK economic data were conspicuous by their absence over the holiday period, with just the BBA's narrow measure of mortgage lending. January began with the manufacturing sector purchasing managers' index. At 47.5 it was not out of kilter with its European peer group.
Spain was the main source of Euroland economic data over the holidays, and they were not too shabby. Retail sales were up by an annual 2.9% in November, roughly in line with forecast. Gross domestic product expanded by 0.4% in the third quarter, putting growth for the 12-month period at 1.9%. The manufacturing PMI at 47.4 was almost identical with the UK reading. There was another minor triumph from Madrid with news that Prime Minister Pedro Sanchez has secured backing to form Spain's first coherent government for nearly a year.
The news from Germany was less upbeat, with the manufacturing PMI struggling along at 43.7. It was in the sub-50 recession zone for the whole of 2019. Overall, the euro weakened slightly over the holiday period, losing an average of 0.2% to the other majors. It was steady against the antipodean dollars and all three of them went up by 0.7% against the US dollar.
The US dollar was the biggest casualty of the holiday period, losing an average of 0.9% to the other major currencies. It lost a net cent and three quarters to sterling and three quarters of a cent to the euro. Its main problem, ironically, was the prospect of phase one trade deal between Washington and Beijing being signed this month. The deal itself is apparently less groundbreaking than investors might have hoped (details have yet to be announced) and it could be years before a comprehensive agreement emerges, but investors see it as a statement of intent and find it preferable to the current impasse. That optimism has lessened appetite for the safe-haven yen and dollar.
And that was the dollar's problem at the end of December. Last Friday and through the weekend it retreated at a pace. There was some recovery at the beginning of this week, which was accelerated by heightened tension this Friday after a US air strike on Iran's General Qassem Soleimani.
The US air strike had an immediate upward impact on oil prices, propelling WTI crude to a four-month high. Oil had already made headway from the lows of early October: in three months it went up by 19%. And that worked in the Loonie's favour over the holiday period. The Canadian dollar is unchanged from Christmas Eve against the safe-haven yen and Swiss franc. It is a quarter of a cent lower against sterling and has added one US cent.
Just one Canadian ecostat appeared over the last week. The manufacturing PMI touched a four-month low at 50.4, depressed by slower growth, falling orders, subdued job-creation and business optimism falling to its weakest since February 2016. For the Loonie itself, the outlook is less gloomy: If the focus remains on Middle East tensions, it could be helped by firm oil prices: if the storm passes over, it could gain support from a more amicable trade environment.
A steady climb through Christmas and into the new year took the Aussie to a six-month high against the US dollar. It gave back some of that ground in early January, as did most of its peers, leaving it with a gain of two fifths of a US cent since Christmas Eve. It lost 0.8%, a little under a cent and a half, to sterling. Some see this as a problem for the Reserve Bank of Australia, given the central bank's ambitions to boost inflation and the domestic economy.
The manufacturing sector PMI for December, Australia's only ecostat over the holiday period, was not helpful to that aim. As the headline to the report put it: "Manufacturing PMI ends 2019 at a survey record low". Whilst that is not as dramatic as it might look - the survey is fewer than four years old - the text of the report spoke of falling sales and employment. The PMI readings from Australia's biggest export customer, China, were mostly a touch lower on the month but were at least above 50, signifying growth.
Between Christmas Eve and this Friday morning, the NZ dollar added two fifths of a US cent and was all but unchanged against the Aussie. It lost a cent and a half to sterling. There were no fundamental domestic economic factors or news to affect the Kiwi: not a single NZ economic statistic appeared during the week.
That being the case, with no agenda of its own, the Kiwi bobbed along in the wake of its larger neighbour, behaving like any other commodity-related currency. To that end it was helped by the prospect of a Sino-US trade deal being signed this month and, latterly, by an escalation of tension in the Middle East following the US air strike. The Kiwi's independence in the coming week is unlikely to be any greater: the only significant ecostat will be the New Zealand Institute of Economic Research's business confidence index reading.