Sterling strengthened against the euro and the US dollar yesterday, the result of fresh economic data and what felt like the start of a new chapter in the war in Ukraine. As Russian, American, and Ukrainian envoys failed to hammer out a deal in Moscow, the European Union (EU) proposed to mobilise around €200 billion in loans backed by frozen Russian assets.
EU politicians had to go back to the drawing board after the European Central Bank indicated it would not guarantee the loans. Instead, the legally dubious workaround would ensure Kyiv would only pay back the loans once Russia began paying post-war reparations. The euro weakened by half a cent against the pound as markets digested the plan. The real movement would come in dollar markets.
An upward revision to last month’s services data boosted the pound on Wednesday. S&P dragged the UK’s PMI report up to 51.3, well beyond the preliminary 50.5 although still below October’s print.
Over in the United States, the services sector was also performing surprisingly well, with November’s ISM data indicating the strongest growth in nine months. Business activity and new orders were both in a positive place, although businesses continued to note the impact of tariffs and the government shutdown.
However, a sharp fall in new orders and private employment crystalised the chance of an interest rate cut at the Fed’s next meeting. That led to steep losses for the US dollar (more on that below) despite what appear equally clear signs that the Bank of England will follow suit on 18 December.
On these isles, yesterday’s big political news was an apparent electoral pact between Reform UK and the Conservatives. Nigel Farage would later reject those reports, which were quickly seized upon by Sir Keir Starmer and the Labour Party. The Times even reported that senior Tory Robert Jenrick was being courted by Reform, although that drew another denial from Jenrick.
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