The British pound has posted slight losses in the Wednesday session. In North American trade, GBP/USD is trading at 1.3510, down 0.23% on the day. In economic news, British Manufacturing Production slowed to 0.4% in November, down from 0.7% a month earlier. Still, this beat the estimate of 0.3%. Over in the US, Import Prices slowed to 0.1%, short of the estimate of 0.4%. On Thursday, the US releases PPI reports and unemployment claims.
The US dollar is under pressure, after a report on Wednesday that China was considering slowing or halting the purchase of US government bonds. China boasts the largest currency reserves, estimated at $3 trillion. It is also the biggest holder of US government bonds, in the amount of $1.19 trillion. Why would China make this move? One reason is that it may consider US treasuries less attractive compared to other assets. As well, it could be part of China’s strategy to flex some muscle as a possible trade war looms between the US and China, which are the two largest economies in the world. The report has pushed US Treasury yields higher and sent the US dollar downwards.
Brexit negotiations have been slow and difficult, as Europe is not keen on rewarding Britain for departing the European Union. There are serious divisions within the government with regard to the talks. and May has to walk carefully, as she has a razor thin majority in parliament, Prime Minister May can ill afford any mistakes, and if her government runs into trouble, she may be forced to call elections, which could shake up the markets and send the pound downwards. The public is almost evenly split on whether Brexit is a good idea, and there are serious concerns that the British economy will take a hit, even if a deal is worked out before the March, 2019 deadline. The parties do not have a lot of time to hammer out a host of trade issues, and all indications are that the negotiations road will be bumpy and difficult.
