The Dollar is up (or flat versus) all major currencies in the past 48 hours bar the Australian and New Zealand Dollars but in trade-weighted terms is still broadly unchanged from three weeks ago. While a Fed hike on 19th December looks in the bag markets are increasingly unsure about the outlook for 2019, currently pricing in less than one 25bp hike. This is a material turnaround from two months ago when the Fed and markets were hand-in-hand talking up the need and likelihood of more monetary policy tightening next year.
Sterling (and in the Indian Rupee) are the biggest underperformer in so far this week have with the currency knocked down by Prime Minister May’s decision yesterday to cancel a crucial parliamentary vote on the draft Brexit deal. Her decision, spurred by overwhelming decision that parliament would have been unlikely to vote in favour, has generated more questions than answers and added an extra layer of uncertainty as to what her government and parliament will do next. The leader of the ruling Conservative Party has been on a whistle-stop of Europe to convince EU leaders to review and ultimately change the conditions of the legally-binding Withdrawal Agreement but EU negotiators have made clear that there was no will or room to renegotiate the terms and conditions of the EU’s exit from the EU.
The GBP/USD cross is now threatening to breach the 1.25 level – which last happened in December 2016. Strong UK labour market data, including a further pick-up in wage growth in October, temporarily pushed the cross above 1.26 but ultimately markets cannot get too excited given the exponential uncertainty generated by Brexit.
