The Pound is looking to end 2017 on a good note this Friday, rising against the majors as Italian President Sergio Mattarella formally dissolved parliament to prepare for the general election in March next year.
This election could have severe implications for the future of the Bloc, with the Eurosceptic Five Star Movement, M5S, on track to claim some 40% of the vote and win power.
Beyond this, the ruling left-wing Democratic Party (PD) will likely face strong contest from the right-wing Forza Italia, another party that could seek independence from the Eurozone.
Markets are, as a result, apprehensive about such an eventuality, as another nation leaving the Bloc could prove the Eurozone’s death knell, particularly if even more nations follow suit.
In other news Britain’s FTSE 100 index hit a new record high at the start of trading today.
The blue-chip index climbed to 7,636, beating Thursday’s peak in response to lower Pound movement over the holiday period and progress onto the next phase of Brexit negotiations.
Pound Euro (GBP EUR) Exchange Rate Strong despite German CPI
The Pound Euro Exchange rate is looking to end 2017 on an up – though gains have been dampened slightly by the December German inflation reports.
Analysts expected the consumer price growth rate in Germany to decelerate year-on-year from 1.8% to 1.5%, with the month-on-month figure similarly forecast to drop from 0.3% to 0.5%.
However, monthly CPI instead rose to 0.6%, meaning year-on-year price growth only slowed to 1.7%.
Pound US Dollar (GBP USD) Extends Gains on Thin Holiday Trading
The US Dollar continues to fare somewhat poorly during the holiday trading period, with markets disappointed that November’s US advance goods trade deficit widened from -$68.1b to -$69.7b, below the forecast of -$67.9b.
The other domestic data releases proved mostly soft, with unemployment meandering around ‘full employment’ levels and the recent consumer confidence index for December contracting from 128 to 122.1.
Despite the fall, consumer confidence in the US is still at extreme highs, with markets broadly optimistic for 2018.
Beyond this, investors do not predict the recent sweeping tax changes to have a noticeable effect on the US economy for some time and seasonal trends also tend to see the ‘Greenback’ weaken after the Christmas period, before eventually gaining in the New Year.
This is often because institutional investors close their books towards the end of the year (the deadline for taxation); activity that often leads to selling pressure.
Pound Canadian Dollar (GBP CAD) Climbs Ddspite Soaring Crude Oil Prices
Disinterest in the Euro and a notable lack of domestic data releases saw Pound Sterling take the lead against the Canadian Dollar on the last trading session of 2017 – despite the currently soaring crude oil prices.
In terms of ecostats on the horizon, the 2nd of January will feature Canada’s RBC manufacturing PMI print for December and the MLI leading indicator for November, whilst Friday the 5th will feature the highly anticipated Canadian employment readings.
Whether the Pound will extend its lead against the ‘Loonie’ into the New Year, however, will be highly dependent on progress made in Brexit negotiations, with markets still apprehensive that elements of the transitionary deal will be drawn out and prolonged, possibly leaving trade discussions off the table for some time.
Pound Australian Dollar (GBP AUD) Strong despite Commodity Surge
Commodity currencies have been performing extremely well during the holiday period, with the Australian Dollar notably bolstered by a surge in metals like copper and gold, as well as crude oil prices.
It should be noted, however, that iron ore continues to fare poorly, with China’s construction sector (utilising massive amounts of steel) slowing during the winter months.
Nonetheless, markets switching from the Euro to favour the Pound on Friday further enabled Sterling’s lead.
Pound New Zealand Dollar (GBP NZD) Finishes 2017 on Solid Form
Demand for the ‘Kiwi’ Dollar remained mostly flat on Friday, with markets predominantly waiting for next week’s global dairy auction prices before buying or selling.
2018 will see the new Labour-led coalition government in New Zealand truly put to the test, with investors worried about the economic impact that new policies (like curbing immigration) will have on the economy.
Beyond this, the Reserve Bank of New Zealand’s (RBNZ) new dual mandate is also liable to cause tension for this pairing.