The pound started the week yesterday with better than expected UK data. Services Purchasing Manager’s Index (PMI) for December came in at 50.0 against a forecast 49.1, and while better than expected the figure does indicate that the UK services sector is neither expanding nor contracting. However, given the market uncertainty we have seen in the past couple of months, it could have been a lot worse.

Today UK lawmakers will start 3 days of debate on Prime Minister Boris Johnson’s Brexit deal which given the majority he has in the House of Commons should easily be passed.

24 days until the UK leaves the EU

On Wednesday, Johnson will be meeting with the President of the European Commission, Ursula von der Leyen at Downing Street to discuss trade relations between the UK and EU. The results of these discussions could create volatility in the market for the pound so could be worth keeping a close eye on these developments.

With only 24 days to go, the UK is set to leave the EU at the end of this month. The Prime Ministers’ pledge to not extend the transition period means there is still a risk of a no deal, however small, and is still a cause for concern as the UK starts to negotiate a trade deal with the European Union. Shamik Dhar, Chief Economist at BNY Mellon Investment Management said in a Bloomberg interview, “Sterling traded much of 2019 as a Brexit currency and so long as the 'no deal' risks remains I think it will remain weak”. The UK and EU must agree a free trade agreement to come into effect on the 1st January 2021.

Eurozone Consumer Price Index and Retail Sales Figures Released Today

Today, Spanish leader Pedro Sanchez will try to form a new government. To be able to do this, Sanchez has had to strike a deal to co-govern with far-left Podemos and negotiate an abstention from the vote by the Catalan Nationalist Party Esquerra Republicana de Catalunya. We should know more on the result of this later today.

Yesterday, the Eurozone saw better than expected services data. Eurozone Services Purchasing Managers’ Index (PMI) came in at 52.8 ahead of the forecast of 52.4 and Markit Composite PMI at 50.9 against a forecast 50.6. Spain, Italy, France and Germany all released better than expected figures above 50, demonstrating expansion in the services sector in December for each country.

Today, the market will be looking towards data releases at 10:00am where Eurozone Consumer Price Index and Eurozone Retails Sales figures are released. The data releases are forecast higher than their previous readings at 1.3% and 0.6% respectively, indicating potential support for the value of the euro.

US/China Sign “first phase” Trade Deal, Supporting USD

US Iran Tensions Affecting US Dollar Rates

Tensions between the US and Iran remain high and will continue to dominate the news. Tehran has said it is no longer abiding by the limits set by the nuclear deal and have vowed revenge for Qassem Suleimani's death. If Iran retaliates, US President Donald Trump has threatened a “disproportionate response”. Any escalation of further tension or reprisal could adversely affect the value of the dollar.

Yesterday however, the US dollar was supported by better than expected Services Purchasing Manager’s Index (PMI) data and Markit Composite PMI data both released at 52.8 and 52.7 respectively.

Today, the market will be paying close attention to the Institute of Supply Management (ISM) Non-Manufacturing PMI data and Non-Manufacturing Employment data for the month of December both being released at 3:00pm. Both data sets are expected to show an expansion with figures above 50, which could help give the US dollar some needed support in the short term.

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