02/12/16 - GBP Fights Back On News of Access to The Single Market

GBP

Sterling struck multi-month highs on Thursday, adding to its biggest monthly gains against the euro since 2009, after Britain's Brexit minister said the government would consider paying into the EU budget for market access. The pound recovered from an initial dip after weaker-than-expected data to add over 1 percent in trade-weighted terms on the day.

Britain is formulating its negotiating position ahead of formal divorce talks next year, and businesses want reassurance that it won't seek a "hard Brexit" that would prioritise curbing immigration over remaining in the EU single market. Sterling, coming off the back of its best month against the dollar since March, hit a two-month high against the greenback after Davis's comments and broad dollar weakness caused by data showing U.S. jobless claims at a five-month high.

Davis's comments chimed with hints from British Prime Minister Theresa May earlier this month that she could be open to some form of transitional agreement with the EU, easing fears about the disruptions Brexit may bring.

Disappointing British manufacturing data on Thursday gave a glimmer of the economic hit Brexit could bring. Factory output cooled unexpectedly in November as manufacturers grappled with soaring costs caused by sterling's slump, while the weaker pound failed to boost export orders as much as in previous months.
 

USD 

The dollar yesterday took a backseat in terms of movement due to both the EUR and GBP claiming headlines with more political news and its implications on financial markets. Nevertheless, the unemployment claims figure was printed at 268k against a previous of 251k and the ISM manufacturing figure printed at 53.2 against a previous of 51.9.
 

EUR

The euro rose to session highs against the dollar in mid-afternoon Thursday after French President Francois Hollande said he would not seek a second term in office, a surprise move seen paving an easier path for conservative Francois Fillon to win the post in 2017.

The focus for the common currency is now on the Italian referendum on Sunday that could reject Prime Minister Matteo Renzi's constitutional reforms, on which he has staked his political future.

His departure could destabilize Italy's fragile banking system and be taken as another sign of rising anti-establishment sentiment around the world, potentially eroding investor confidence in the currency union.
 

Key Announcements

09.30 – GBP – Construction PMI; Forecast at 52.3 against previous of 52.6

13.30 – USD – Average Hourly Earnings MoM; Forecast at 0.2% against previous of 0.4%

13.30 – USD – Non Farm Employment Change; Forecast at 165k against previous of 161k

13.30 – USD – Unemployment Rate; Forecast at 4.9% against previous of 4.9%