The forex market this morning has largely extended the trends that began yesterday: the US Dollar continues to shed considerable value; the Euro appears stronger against most of its G-10 counterparts; and the Pound’s performance is highly mixed. This morning, Italian Prime Minister Paolo Gentiloni accelerated the aggregated political risk surrounding the Euro. The Italian elections are of high salience to Italy, and the Eurozone in general. These elections, within a founding member of the Eurozone, will add uncertainty to the single currency. Despite this morning’s reminder, the Euro has largely retained yesterday’s turn of strength, accelerating up at 1.1948 against the U.S. Dollar.

Sterling Briefing: Davis Looks On

David Davis has most likely had a rather unpleasant Christmas. Following criticism throughout December and late 2017 for a lack of preparation and forecasting on Brexit, the secretary of state and government has released 850 pages of documents detailing is sector by sector Brexit analyses. Unfortunately for the cabinet member, the publication offered little respite to Davis’ situation.

Sterling markets have been hindered by a lack of confidence in the institutional capabilities of Westminster and the incumbent Conservative government. The UK government started on the back foot in Brexit negotiations having failed under David Cameron to plan for the eventuality of a Leave majority. The publication was void of any market sensitive information according the Chair of the ‘Exiting the Union Committee’ and MP, Hillary Benn. Therefore, the market attention to the publication was minimal, leaving Sterling to have an ambiguous, yet pessimistic, post-Christmas performance.

What remains important, however, is a weakening of the political stature and security of the member of parliament. The publication, whilst substantive, failed to placate Brexit critics or act as a bargaining chip within European institutions. Moreover, the documents contained little information or support for industries of systemic national important. Specifically, the UK’s prized, and most Brexit-exposed, financial services and banking sector found little solace in the generalized remarks of the report. Developing the challenge to Davis, it is reported today that European institutions, and Davis’ counterpart Michel Barnier, are looking to sideline the UK’s chief negotiator within talks.

Euro Briefing: Italian Uncertainty

First the pro-independence success within regional elections in Catalonia and now the acceleration of Italian uncertainty. The end of 2018 is generating numerous political obstacles to Euro strength. However, the single currency refuses to budge from its strong position, particularly versus the US Dollar and the Pound Sterling.

Italian elections have been a certainty for some while; the mandate for the present government is expiring. However, this morning saw an affirmation of the nationwide elections from incumbent Prime Minister, Paolo Gentiloni. Having survived French and (just about) the Dutch and German elections, the next hurdle is Italy. Far right and populist movements are incredibly threatening to the Euro and European project. Italy has had one of the most severe and sustained recessions following the sovereign debt crisis, making it highly susceptible to a result that may upset 2017’s equilibrium.

Dollar Briefing: Gains eliminated

Early December delivered a forecasted and considerable unilateral appreciation of the US Dollar. The currency gained a little over 1%, driving the EURUSD rate below 1.175 for the first time in over one month. However, since mid-December, the Dollar has relinquished this ground, ending up down 0.35% for the month. The concomitant weakness of Sterling is preventing full gains from being realized within the cable rate.

Boring 2017:

It’s official. 2017 has been the most boring year since financial volatility instruments began. Despite idiosyncratic cases of movement and excitement, general volatility, for example that measured within the US S&P 500, ‘VIX’ instrument, is at an all time low. The volatility within currency markets has also been underwhelming. As we look towards 2018, higher growth, and normalising monetary policies, volatility could creep into the market.

Discussion and Analysis by Charles Porter

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