Sterling briefly touched eight-week highs yesterday but steadied later on in the session as investors prepared for a key EU summit amidst a brewing political crisis in Ireland.
The crisis was sparked by opposition parties demanding the deputy prime minister, Frances Fitzgerald to step down with both Sinn Fein and Fianna Fail having tabled separate motions of no confidence in the former justice minister.
With the Dublin government looking set to fail, the fresh political turmoil has seriously damaged the prospect of reaching a deal with the EU on the Northern Irish border. Investors are now increasingly concerned that Irish Prime Minister Leo Varadkar may call a snap election next week over a separate issue although he held recently talks with the leader of the main opposition party Michael Martin aimed at avoiding a general election.
The political crisis is likely to place mounting pressure on the UK government which has now only 6 days to improve its divorce offer in order to persuade officials at the EU to unlock trade talks with the UK at an important crunch summit next month.
The dollar strengthened yesterday against other major currencies as stronger than expected housing market data pointed to stronger US economic growth for the fourth quarter.
Despite the recent and ongoing spate of hurricanes in southern parts of the U.S., new home sales posted their highest reading since October 2007. The figure rose by 6.2% to a seasonally adjusted annual rate of 685,000 units last month. Analysts had originally forecast the figure to decline 6% to an annual rate of 625,000.
The bullish data has helped ease concerns amongst investors over subdued inflation in the economy which may deter the Fed from raising interest rates next month.
However gains in the dollar were limited over fresh uncertainty over whether tax reforms will be passed before the end of the New Year. U.S. president Donald Trump is set to meet Senate Republicans later today for an update on tax reform efforts.
07.00 - GBP: Bank Stress Test Results
07.30 - GBP: BOE Governor Mark Carney Speaks about the Financial Stability Report and Bank Stress Test Results
14.45 - USD: Fed Chair Designate Powell Speaks
15.00 - USD: CB Consumer Confidence; Forecast at 123.9 against a previous of 125.9
20.45 - USD: Treasury Sec Mnuchin Speaks