With the US markets closed for Thanksgiving, the dollar was lacking liquidity. However, Europe more than made up for the lack of US data.
The pound rallied over 1% on news that the UK and the EU had agreed on a draft text setting out a close post-Brexit relationship. After 18 months of fraught negotiations, pound traders were finally starting to see some positives. The draft agreement is extensive, covering points ranging from trade liberalisation to cooperation between the police, although it does fall short of Theresa May’s frictionless trade. What is driving the pound is the ambitious tone of the declaration of future ties, which could help Theresa May secure sufficient backing when she tries to pass the Brexit package through Parliament. Additionally, the sheer relief that the deal is as good as complete, with a few adjustments remains, before the 25th deadline boosted the pound.
Following the relief rally, the pound came away from the highs reflecting the fact that the text whilst broad, contained less detail than traders would have liked to have seen.
Retailers and housebuilders higher
The strong rally in the pound ensured a stiff fall for the FTSE, where the majority of constituents are multinationals, penalised by pound strength. Noticeable riser where housebuilders and retailers. Retailers have had a particularly rough ride over the past 18 months. Following the Brexit referendum, UK consumers have seen their wages squeezed by increasing inflation and lacklustre earnings growth. As a result, they have been spending less. Any signs that a Brexit deal could go through, with a close future relationship with the EU, could prevent another heavy fall for sterling and a repeat spike in inflation. Good news for retailers.
Euro gains as ECB unanimously decide to stick plan
The euro was also in focus following the release of the account from the ECB meeting on 25th October. Going into the meeting there had been some concerns that slowing momentum in economic growth across the region would cause a more dovish tone from ECB policymakers. Whilst the minutes showed that policymaker acknowledged the slowing growth, on target inflation encouraged them to stick unanimously with the decision to halt the asset purchase programme in December as planned. The sheer relief that the ECB was not more dovish, despite slower economic growth sent the euro higher versus the dollar.
Gains in the euro were capped, however, following disappointing consumer confidence data. Consumer confidence in the eurozone declined by more than expected to -3.9. The euro will remain in focus as investors look towards a slew of eurozone PMI releases tomorrow.