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Sterling fell and Trump's comments led to a productive day for the US dollar.
Sterling loosened its stranglehold over the euro on Monday as British manufacturing output fell in November. S&P Global’s manufacturing PMI survey was revised lower to 48 in November, its weakest level since February.
Over in the USA, Donald Trump was busy threatening members of the BRICs community (an economic shorthand for Brazil, Russia, India, China and others) with further tariffs. The political intrigue was mirrored in Europe, as the French parliament sputtered ever closer towards a vote of no confidence.
France’s constitutional complexities make explaining the unfolding drama slightly tricky. By way of summary, the euro came under pressure yesterday due to the government’s upcoming budget. The money-saving measures within that budget have proved unpopular with many and it took Michel Barnier forcing it through to break the impasse. However, that decision seems likely to prompt a vote of no confidence in the government this week.
European factory floors struggled alongside their British counterparts. Final HCOB manufacturing PMI numbers for November were downwardly revised in France and Germany but came in unchanged at the initial 45.2 for the entirety of the eurozone. The Hamburg Commercial Bank’s chief economist said “there’s no sign of a recovery anytime soon” for European manufacturers.
Despite this, the euro still climbed over the pound on Monday. GBP/EUR’s fall of half a cent to begin the week still leaves it more than 1% up since the start of November. The euro and the pound both struggled against the US dollar, which climbed as markets reacted to Trump’s comments and new economic data.
The US Institute for Supply Management (ISM) manufacturing PMI landed at 48.4 last month – well above forecasts and October’s 46.5. New orders rebounded after a seven-month stretch of contraction while price pressures eased. The headline data is looking up but demand within the sector remains weak, according to the ISM’s commentary.
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GBP: Manufacturing highlights need for reset
With Keir Starmer due to deliver a “reset” this week after seeing his approval ratings plummet, the pound could do with the same. One bad day saw most of GBP/USD’s gains from last week wiped out and, while pressure on the euro limited sterling’s pain, fresh momentum is needed for the pound to return to the levels it enjoyed in the Autumn.
GBP/USD: the past year
EUR: Euro awaits France’s fate
Similar to a US government shutdown, the political skulduggery in Paris is focusing attention on the euro and the price of French government debt. Politics caused some weakness for the euro on Monday but the real volatility will come should the budget result in a vote of no confidence.
GBP/EUR: the past year
USD: The power of a tweet
Donald Trump’s first term as president saw the strange phenomenon of government by tweet. Over the weekend, Trump showed we could be in for more of the same as he threatened to impose tariffs on BRICs nations moving away from using the US dollar as their reserve currency. The US dollar should beware taking momentum from the president rather than its own power.
EUR/USD: the past year
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