Euro bulls pushed the euro to a fresh two-month high during the European session after upbeat readings on German business climate improved sentiment on the Eurozone’s outlook and political risks in Germany eased. The dollar weakened even further amid a strengthening euro, while disappointing PMI readings added further losses to the currency.
Business confidence in Germany reached new record highs in November, with the headline business climate index jumping by 0.9 points to 117.5 compared to the expected 116.6. Businesses also remained optimistic about their activities over the next six months, driving the relevant index up by 1.8 points to 110.0. Analysts forecasted the index to retreat to 108.9. However, it should be mentioned that the Ifo institute stated that survey responses were collected prior to the collapse of the coalition talks on Sunday.
Positive developments on the political front emerged after a senior member of the center-left SPD party said on Friday that “the SPD will not say no to discussions”, expressing the party’s willingness to start coalition talks with Merkel’s Christian Democrats. Recall that the Social Democrats, Merkel’s ex-coalition partners turned to the opposition in September after they recorded their worst election result. The German President, Frank Walker Steinmeier, noted that he would hold talks with Merkel and the SPD next week.
Euro/dollar managed to break the 1.1900 key level for the first time in two months, reaching $1.1930 and being 0.68% up on the day. Euro/yen and euro/pound touched a fresh one-week high of 132.69 (+0.38%) and 0.8920 (+1.0%) respectively.
The dollar index weakened by 0.42% to a two-month low of 92.70 on the back of a rising euro and as US markets were partially closed following the Thanksgiving holiday.
The November flash IHS Markit manufacturing PMI out of the US was released at 53.8, below expectations for a reading of 54.8 and October’s reading of 54.6. The respective reading for the services sector came in at 54.7. This compares to forecasts of 55.6 and October’s 55.3 and constitutes a four-month low. The composite reading that blends the manufacturing and services sectors came in at 54.6, also a four-month low. Still, all readings were above the 50-mark, pointing to expansion. IHS Markit chief economist Chris Williamson made reference to “another month of solid growth in November, putting the economy on course for a reasonable, though by no means stellar, fourth quarter.” Dollar/yen fell within the first the first minutes of data release, though it quickly recovered the losses. Dollar/yen was last trading at 111.49 (+0.25%).
The British Prime Minister, Theresa May, arriving in Brussels on Friday for a summit with Easter European leaders and the European Council President, Donald Tusk, said she would make efforts to secure Brexit talks would lead to future trade relations, offering an improved divorce bill which was also backed by cabinet members last week.
Back in Ireland, political stability was in danger, after the head of the opposition party, Fianna Fail Micheal Martin, submitted a no-confidence measure to be voted on Tuesday on the Deputy Prime Minister, Frances Fitzgerald, over her handling of a police scandal. The leader of the minority government, Fine Gael, though ruled out the resignation of Fitzgerald increasing the risk of snap elections in the country. This could also harm Britain’s efforts to persuade EU leaders next month at the EU summit to open negotiations on post-Brexit trade relations as the Irish border is one of the three issues the EU demands to resolve before negotiations move to future trade relations.
Pound/dollar broke a seven-week high of 1.3356 before it inched down to 1.3334, trading 0.24% up on the day.
In other currencies, the aussie erased earlier losses, climbing to $0.7625, while the kiwi also rebounded towards $0.6885. Dollar/loonie pared today’s gains, falling to 1.2708.
In commodities, gold retreated by 0.20% to $1,288.30 per ounce and oil prices were mixed. WTI crude increased by 1.0% to a fresh two-year high of $58.92 per barrel before it edged down to $58.52 as the disconnection of a Keystone pipeline from Canada to the US last week continued to tighten the market. Brent pulled back by 0.27% to $63.38 after touching a two-week high of $63.84 a barrel. Moreover, a layer of uncertainty over Russia’s stance on supply cuts at the next week’s OPEC meeting was removed after the Russian Energy Minister, Alexander Novak, said that Russia was ready to announce the need for an additional period of cuts at the OPEC’s meeting on November 30 but did not mention how long would the cuts last after the March expiry.