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USD eases as Republicans lose Alabama Senate Election. AUD up on M&A deal, GBP steady ahead of average earnings data.

By Nick Parsons

Against a US Dollar which has been hit by the Senate election result in Alabama (see below), the pound has recovered a little overnight though it still remains lower than it was 24 hours ago. GBP/USD hit a low of 1.3306 yesterday evening but opens in London this morning just over a quarter of a cent higher at 1.3333. It is steady against the euro but down against both the Australian and New Zealand Dollars.

Today looks a much tougher day politically for Prime Minister Theresa May. Faced with a proposal from the former Attorney General that would require the Prime Minister to write the terms of her Brexit deal into a law that would have to be passed by Parliament, she faces either defeat or retreat. There is enough cross-party support to defeat the Government in a House of Commons vote this evening which could dramatically shatter the veneer of unity after last week’s Irish border deal.

Before then, there’s anther set of incoming economic data with the unemployment and average earnings figures released at 09.30am. Consensus expectations are for the jobless rate to dip a tenth to 4.2% whilst average earnings (ex-bonus payments) are seen steady at 2.2% y/y. As CPI inflation yesterday rose to 3.1%, the squeeze on real incomes will worsen unless earnings rise.

The Pound opens in London this morning at USD1.3330 and EUR1.1335, with GBP/AUD at 1.7605 and GBP/NZD at 1.9200.

The USD has been on a real hot streak, rising for a 6th day out of seven on Tuesday to take its index against a basket of major currencies up to a high of 93.81; its best level since November 14th. It closed in New York around 93.7 and overnight has eased back a little further to open in London this morning at 93.57.

The big event politically was a highly controversial Senate election in Alabama; a deeply conservative southern State. The Republicans has not lost a seat there for 25 years and in the Presidential Election in 2016, Donald Trump won by 28 percentage points; 62.1% to 34.4%. Mr. Trump had given enthusiastic support to a former judge, Roy Moore, who faced a series of allegations about misconduct and who has previously said that he does not believe that Barack Obama was born in the US and that Muslims should not be allowed to serve in Congress. Mr Moore was defeated by Democrat Doug Jones; a move which not only questions the President’s judgment, but reduces the Republican majority in the Senate to just one seat.

Mr Trump said on Twitter: “Congratulations to Doug Jones on a hard fought victory. The write-in votes played a very big factor, but a win is a win. The people of Alabama are great, and the Republicans will have another shot at this seat in a very short period of time. It never ends!”

Ahead of this evening’s FOMC Statement and the inevitable 25bp rate hike, US CPI at lunchtime is expected to rise from 2.0% to 2.2%, though the core ex-food & energy measure is seen unchanged at 1.8%. The stock market reaction to both events will be crucial to the near-term prospects for the US Dollar.


Apart from a brief rally around the release of the ZEW Survey, it was downhill all the way for the EUR on Tuesday. Yet again, it fell against every major currency with its biggest losses against the AUD and NZD (-0.5%) but down -0.4% against the USD and 0.1% against the GBP. Looking at individual pairs, EUR/USD fell to a low of 1.1720; matching its lowest point in 3-weeks whilst AUD/EUR rose 40 pips to 0.6440 and NZD/EUR was up 35 pips at 0.5905. GBP/EUR ended up very slightly at 1.1335.

The day ahead should bring another set of decent, albeit lower-tier, economic numbers in the Eurozone. Italian industrial production at 9.00am could see the annual rate top 3% in October whilst the Eurozone aggregate number an hour later should accelerate from 3.3% to 3.5%. We’ll also get to see quarterly employment numbers across the region. On the political agenda, European Commission President Juncker and European Council President Tusk are scheduled to brief members of the European Parliament about Brexit negotiations ahead of the EU Economic Summit in Brussels on Friday.

Tomorrow morning we’ll get the ‘flash’ December PMI’s and there’s an ECB Council Meeting at lunchtime at which new staff economic projections going out to 2020 will be unveiled. A Bloomberg survey of analysts conducted last week shows only two banks expect the ECB to raise rates before December 2018, so tomorrow’s meeting should be pretty uneventful.

Although the Aussie couldn’t hold on to its best levels against a very strong US Dollar, Tuesday was actually a pretty good day. It held its ground against the buoyant NZD and finished up against every major currency we track here with its biggest percentage gains versus the EUR (+0.7%) CAD and GBP (both +0.5%). AUD/USD peaked at 0.7576 before slipping back to 0.7548 but this morning in London it’s back testing that technical resistance point once again.

One of the reasons for Aussie strength is the takeover of Sir Frank Lowy's famous Westfield Corporation in a deal said to be worth AUD$32.7 billion. Founded in Sydney in 1953, Westfield currently has interests in 35 shopping centres in the US and the UK and its chairman received a knighthood from the Queen at Windsor Castle just a few days ago. Sir Frank was recognised for his contribution to the British economy after Westfield built two enormous shopping centres, one in London's Shepherd's Bush and one in Stratford City. French company Unibail-Rodamco will acquire Westfield for a combination of shares and cash, and though the 35% cash element won’t be paid until next year, the announcement has helped lift the AUD.

Looking forward to tomorrow’s Australian economic data, consensus estimates are for a +15k increase in employment with the jobless rate steady at 5.4%. Unlike many countries elsewhere in the world, Australia doesn’t produce monthly earnings data alongside the labour report; instead the wage price indices are available only quarterly and we’ll have to wait until February for the latest updates.

For today, AUD/USD opens in London up around half a cent at 0.7575 with GBP/AUD at 1.7605.

The Canadian Dollar had a day of two halves on Tuesday, tracking oil prices both up and down. The early news was that the North Sea Forties Pipeline System – which carries 400,000 barrels per day of oil to Scotland – is being closed for repairs after the discovery of a serious crack whose repair will likely take weeks rather than days. NYMEX crude (not a perfect substitute for Brent but still highly correlated to it) jumped 50 cents to a high of $58.55 but then plunged a dollar-fifty in the North American session to $57.10. Overnight it has rallied almost 50 cents to $57.55.

USD/CAD had a pretty volatile session, moving from 1.2821 to 1.2855 before then settling back in the middle of this range through the overnight session in Asia. It opens in London this morning at USD1.2857 with GBP/CAD at 1.7135.

The rest of the week is pretty light in terms of economic data with just new house prices tomorrow and the monthly survey of manufacturing on Friday. Bank of Governor Stephen Poloz has a fascinatingly titled speech “Issues keeping me awake at night” on Thursday lunchtime in Toronto which is presumably not about his list to Father Christmas…

Having finished Monday way out at the top of the FX pile and up against every major currency, the Kiwi Dollar extended its gains even further on Tuesday morning before finally giving back a little of its stellar performance. It still finished the day up against every currency apart from the AUD (against which it was net unchanged at 1.0900 having at one point been to AUD/NZD1.0864) and did best against both the GBP and EUR.

Overnight, the NZD has largely consolidated its gains and opens up little changed from New York closing levels of USD0.6935 and GBP/NZD1.9195. The latest data on food prices matched the consensus of analysts’ forecasts, falling -0.4% m/m in November. Lovers of economic data always have plenty to feast on from New Zealand’s official statisticians. Today they tell us that lower fruit and vegetable prices were driven by a 6.5% fall for vegetables. Tomatoes, broccoli, and lettuce led this fall. Fruit prices rose 3.7%, driven by higher prices for nectarines and apples, slightly offset by lower strawberry prices. Elsewhere, and as UK shoppers will be painfully aware, annual butter prices increased 48%to reach another record high. The average price of the cheapest available 500 gram block was $5.74 in November 2017, compared with $5.67 in October 2017 and $3.88 in November 2016. Wouldn’t it be nice if everyone could make their numbers so interesting?