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Sterling under pressure as European Council meeting looms

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7 December 2017

Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

Sterling slipped to its lowest level in a month against the US Dollar on Wednesday as investors continued to fret that Britain and the EU may not reach a Brexit deal at next week’s European Council meeting.

he main stumbling block to the first round of negotiations remains the collapse in talks on the Irish border. Negotiations on the border collapsed on Monday with Irish Prime Minister Leo Varadkar claiming yesterday that a tentative agreement would need to be reached in order to move to the next stage of discussions.

Traders gave little weight to comments from Theresa May around midday on Wednesday. The Prime Minister said that good progress was being made in Brexit talks and that she expected a deal to be struck next week that would pave the way for the second round of negotiations to commence in the New Year. Investors, however, didn’t share such optimism, with the Pound receiving next to no support off the back of her rhetoric

Elsewhere, the Bank of Canada kept its interest rate unchanged as expected yesterday, while claiming it was in no rush to hike rates again. CAD slumped by around one percent versus the greenback after the BoC struck a cautious tone and gave very few hints as to the timing of the next rate increase.

US private sector adds impressive 190,000 jobs in November

The Euro also succumbed to broad US Dollar strength yesterday with the common currency ending around half a percent lower and depreciating to its weakest position in two weeks.

Yesterday’s US private sector labour report was impressive, boding well for Friday’s nonfarm payrolls report and causing investors to buy the greenback. The private sector added a net 190,000 jobs in the US in November, another solid reading and above the 185k consensus. Regardless of whether we see a strong number on Friday we think a December rate from the Federal Reserve is all but assured.

We also had some fairly dovish comments from European Central Bank member Yves Mersch that suggested she would prefer a gradual withdrawal of economic stimulus in the Euro-area. While Mersch stated that the ECB should start planning the end of its QE programme given the currency bloc’s economic recovery, she warned against a premature end to the programme that could lower asset prices and increase yields sharply.

Updated third quarter GDP data for the Eurozone is expected to remain unrevised when released at 10:00 UK time. President of the ECB Mario Draghi will also be speaking at a Bank for International Settlements conference in Frankfurt this afternoon.