No resolution of trade talks
US and Chinese officials both stated that trade negotiations were continuing and a phase-one deal was close, but there were no face-to-face meetings and no deal was announced as underlying tensions persisted, especially after the US expressed support for Hong Kong.
The House of Representatives announced that they would push ahead with the impeachment of President Trump, further complicating the political environment.
Business confidence data remained important with the ISM manufacturing release declining to 48.1 from 48.3 previously, contrary to expectations of a limited recovery and the fourth consecutive reading suggesting manufacturing contraction.
The services-sector reading was below expectations and ADP labour market data was also weaker than expected with a 67,000 increase in private-sector jobs for November compared with expectations of around 140,000. Confidence in the US outlook dipped again following the data.
In contrast, non-farm payrolls increased 266,000 for November, well above consensus forecasts of 180,000 and the October figure was revised significantly higher to 156,000 from the 128,000 reported originally. There was a significant impact from the return of striking workers which added over 40,000 jobs.
Unemployment declined to 3.5% from 3.6% while average hourly earnings increased 3.0% over the year.
After mixed data earlier in the week, the jobs data was significant in boosting underlying confidence in the US outlook. Markets considered the chances of an interest rate cut by the end of January at less than 10%.
The dollar recovered from 3-week lows following the data.
The latest business confidence data indicated that optimism recovered slightly late in November. Although all sectors remained in contraction territory, there were some expectations of recovery.
Although opinion polls suggested a slight narrowing of the Conservative Party lead, markets overall were slightly more confident that Prime Minister Johnson would secure a majority victory in the December 12th election. Expectations that the EU withdrawal would take place by January 31st triggered hopes of a boost to the economy.
A break above technical levels also boosted Sterling.
What are technical levels?
Technical analysis is an important element in currency trading. There are some clearly-defined levels which markets watch closely, especially when it’s a round number. Traders will see these levels as an attractive place to sell the currency. If, however, there is a break above the level, there will be a reversal in sentiment and traders who sold the currency are forced to buy it back again.
GBP/USD had challenged 1.30 in October and November, but failed to break higher and moved lower again. This time, pressure for gains was stronger and there was a break which encouraged further buying to 7-month highs above 1.3100. The move was enhanced by EUR/GBP dipping below the important 0.8500 level to 30-month lows around 0.8420.
German production data remained fragile with a decline for October, although the latest business confidence data suggested a slight recovery was possible early in 2020.
The ECB will undertake a review of monetary policy in 2020 and there was further speculation that the bank would raise its inflation target slightly. This would maintain pressure for extremely low-interest rates and the Euro still struggled to gain significant support.
Chinese PMI business confidence data continued to signal monthly improvement with slightly stronger sentiment towards the global economic outlook.
The Reserve Bank of Australia held interest rates at 0.75% following the latest policy meeting and indicated a patient short-term stance given that rate cuts will take time to have an impact on the economy.
The Bank of Canada held interest rates at 1.75% following the latest policy meeting. Although there were further concerns over global trade disputes, the bank was broadly optimistic over the outlook and pointed to an increase in investment.
The more confident than expected tone triggered Canadian dollar gains, but there was a sharp reversal following Friday’s jobs data. Employment declined over 70,000 for October with unemployment increasing to 5.9% from 5.5%.