Wellcome 2017 !

The worst performing currency today was the British pound which fell sharply against all of the major currencies. House prices rose significantly more than expected in the month of December according to Halifax but the big story was Brexit and the growing possibility of a harder exit from the European Union. As reported by our colleague Boris Schlossberg this morning, “In a SKY interview PM May stated that UK could not expect to hold on to “bits” of its membership after leaving the EU, seeming to stress the “hard Brexit” line that UK would not compromise on the immigrant issue in return for access to the single market. Meanwhile Scotland’s First Minister Nicola Sturgeon warned the Prime Minister that she was not “bluffing” over the prospect of a second Scottish independence referendum, Scotland voted to stay in the EU and the idea of a “hard Brexit” is clearly unappealing to Ms. Sturgeon’s constituents. The currency markets were clearly spooked by the heated rhetoric with traders beginning to worry about the possibility of a hard Brexit and a diminished UK and drove GBPUSD well below the 1.2200 mark towards 1.2125 before finally finding some support. Sensing that Ms. May may have overplayed her hand, the PM’s office quickly came out with a statement that UK wants the best deal within a single market, trying to assuage the markets and reassure its intent to negotiate for some sort of access. With PM May trying to do her best Margaret Thatcher imitation prospects for some sort of a reasonable compromise appear bleak.” GBP/USD appears poised for a move to 1.2080 while EUR/GBP appears to be aiming for 88 cents.
Welcome 2017In contrast, the euro moved higher against the greenback today. Aside from broad based U.S. dollar weakness, the currency also benefitted from stronger trade and current account numbers. Germany’s trade balance managed to show a larger than expected surplus with a report of 22.6b versus 20.3b expected. The current account balance also beat expectations, rising to 24.6b, a slight increase from the previous report of 22.1b. These improvements were driven by higher exports, which is a direct beneficiary of the lower euro. Unfortunately not all news was god news. The Eurozone’s unemployment rate held steady in the month of November while German industrial production rose less than expected. Thankfully year over year IP increased by 2.2% vs. 1.9% expected.

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