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Trump says the new president of Venezuela will pay a “very big price” if she does not cooperate with the US
The fact that it was on a Friday night that American forces captured President Maduro of Venezuela and announced they would run the country now, has given the currency markets a couple of days to work out the implications.
So far, in early trading the US dollar has strengthened almost across the board, but not to any great degree – only 0.25% to 0.35%. Only the Chinese yuan has fared better. Sterling remains close to a four-month high against USD.
However, this may not be the end of the story and the ongoing implications of the attack are immense. Even if a safe and orderly regime change in Caracas can be organised from Washington, the potential division of the world into strongman spheres of influence has implications for Taiwan, Ukraine, eastern Europe and even Greenland, part of Denmark. Moreover, Venezuela is not the only huge oil producer in play, with ongoing protests in Iran.
Back to more mundane economic events, and Friday’s final results for the Purchasing Managers Index (PMI) were a bit of a disaster all round, almost all being downgraded from their earlier estimates. The USA, UK, Spain, Italy and Germany all saw fading optimism among manufacturing business leaders in December. We’ve got more PMI data out tomorrow in different industrial sectors, but will it be as negative?
While looking into the crystal ball, a survey of leading economists in The Times predicted fairly modest cuts in the Fed’s interest rate, with the majority of respondents predicting rates remaining at 3.25% or more in 12 months’ time, despite Trump’s call for swingeing cuts.
Another question for the markets is whether a 45-minute “re-set” interview with the Prime Minister on the BBC will have done anything to shore up his position. Sir Keir Starmer warned against leadership challenges, saying they would simply gift the next election to Nigel Farage’s Reform Party. One thing he was clear in was aligning Britain closer to Europe’s single market, and this could support sterling.
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GBP: Will pound hold on against dollar?
Sterling ended last week still at – or close to – a four-month high on USD, and despite early support for the dollar we are in a volatile situation. Later this morning we’ll be getting some Bank of England data through about mortgage approvals and consumer credit, then shop inflation from the British Retail Consortium (BRC) overnight.
GBP/USD past year
EUR: Euro could go either way
The ongoing market reaction after the Venezuela attack will be instructive. Will the euro be seen as a safe haven currency or will it weaken? Following Friday’s disappointing manufacturing PMI across the bloc, we’ll hear services tomorrow. We’ll also get the inflation result for Germany and Inflation, although both are expected to be at or below the ECB’s 2% target.
GBP/EUR past year
USD: Markets consider Venezuela risks
America’s textbook military capture of Maduro suggests little risk for further downside ramifications just yet, but a ‘risk off’ mode (where higher risk sends investors to safer assets) appears so far to be favouring the US dollar. In the meantime we have ISM Manufacturing PMI today and the rest of the week is all about jobs and the labour market, including Non-Farm Payrolls on Friday.
USD/GBP past year
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