The US dollar index, which compares the US dollar to a basket of widely traded currencies, climbed higher over the week as expectations rose for further interest rate rises over the course of 2018. Sterling was one of the few currencies to make progress against the dollar after a last-minute agreement allowed the UK to agree a divorce settlement with the EU, with negotiations now moving on to trade. Sterling briefly rose above $1.35 to the US dollar, before settling back at $1.347.
As of 12pm London time, the US Standard & Poor’s 500 index fell 0.2% over the week, whilst the technology focused Nasdaq Composite index fell 0.5%, clawing back some of its losses towards the end of the week. The more cyclically sensitive EuroStoxx 50 index rose 2.2% for the week, whilst the UK’s FTSE All Share only rose 0.5%, with performance being impacted by the rise in Sterling. Emerging markets fell 1.4% due to a mixture of profit taking following a very strong year, and a few concerns creeping in over the strength of the US dollar. The Australian S&P ASX 200 was broadly flat, rising 0.1%.
Despite the progress made over tax cuts in the US, the yield on US Treasuries barely moved, with the 10-year now trading at 2.38%. However, UK gilts were impacted by Brexit negotiations, as the 10-year yield jumped to 1.32%. 10-year German bunds remain at 0.31%.
The Federal Reserve’s latest interest rate setting meeting is due next week, with expectations of a further 0.25% interest rate rise, taking US interest rates to a range of 1.25% to 1.50%. However, attention is increasingly turning to interest rate projections for 2018, with the market only pricing in two rate hikes. The latest non-farm payroll employment numbers are due today, with the market expecting 200,000 new jobs having been created in November.
The UK has agreed to pay between €40bn to €60bn to the EU’s budget and guaranteed the rights of 4m EU citizens living in the UK. Negotiations now move on to trade which could prove to be equally as tough. Whether any of this proves to be acceptable to hard Brexiteers remains to be seen.
Overall, the Australian dollar weakened against the US dollar to a two-week low and is now trading at $0.7513 to the US dollar.Whilst the more domestically focused FTSE 250 only fell 0.1%, as hopes were raised for positive trade negotiations. On Friday, the UK’s manufacturing PMI also climbed, rising to 58.2 in November, its highest level in over four years as manufacturers benefitted from the upturn in the global economy and the weaker pound.
Commodities had a tough week as Gold sold off 2.7%, now trading at $1,247 an ounce, its lowest level since late July as rising US interest rate expectations weighed down on the precious metal. Industrial metals suffered too, with copper falling 3.8% and Iron ore down 2.3%. Brent crude fell 1.7%, now trading at $62.6 a barrel.
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