Market moves were muted yesterday. US equities closed lower and the USD declined on concerns of a US government shutdown. Overnight, the House passed the spending bill in a 230-197 initial vote, ahead of today’s midnight deadline where government funding is due to end without a new deal. The vote is now headed toward an additional step in the Senate, where Republicans will require at least a dozen Democratic votes to get the bill through (Reuters).
GBP continued to trade with an underlying bid tone with GBPUSD breaking through the 1.3900 resistance level, aided by a soft USD. This is despite President Macron making a clear and firm stance at a UK-France Summit yesterday, regarding the UK’s contributions to the EU post-Brexit, granting no “special access” for Britain’s financial services industry to the EU single market after Brexit. Elsewhere in UK politics, our Brexit survey showed that investors have taken some comfort from recent advances in the UK/EU negotiations.
Focus turns to UK retail sales today, where we expect it to contract 2% m/m in December.
Our traders see GBPUSD support at 1.3800 ahead of 1.3660 (Bloomberg 2017 highs) and resistance at 1.3940 and 1.4000.
In emerging markets, central banks in South Africa and Turkey left policy unchanged. The SARB kept rates on hold at 6.75% and the rhetoric was neutral, lacking the dovish tilt that many expected. ZAR rallied to its strongest level since June 2015 (vs. USD), despite some selective profit taking after the SARB. Meanwhile, the CBT’s hawkish stance also saw TRY higher (vs. USD), rallying c. 1.7% yesterday.
Looking ahead to this weekend, focus will shift to Germany on Sunday as the SPD delegates will decide on whether to enter into coalition negotiations with CDU and CSU.