Johnson and Corbyn set for head-to-head BBC debate

he GBP/USD pair has now rallied by over one-and-a-half percent since the beginning of the month and almost 8% since Boris Johnson struck a last minute deal with the EU in October. Sterling has also leapt to its strongest position in two-and-a-half years against the euro as investors grow increasingly confident that the Conservative Party will win next week’s election.

With the general trend in the polls not showing any real signs of narrowing, the market continues to price in a big Tory majority. According to the implied bookmaker odds, the Tories now have around a 95% chance of emerging as the largest party at next Thursday’s election, with a 70% chance that this leads to a majority.

The UK currency did, however, retrace some of its gains this morning – a small move that we attribute to investor profit taking more than anything else. The next big hurdle for the currency will be the BBC TV debate between Boris Johnson and Jeremy Corbyn later today. Should Johnson emerge from the debate largely unscathed, there appears little standing in his way of a fairly comfortable victory next week.

Soft US data drags the greenback lower

This month has been a contrastingly poor one for the US dollar. Following a highly impressive month of November, the greenback has suffered from its worst week of currency trading since mid-October, largely a result of trade tensions and weak US data.

Both ISM business activity PMIs fell short of investors’ expectations earlier in the week, as did Wednesday’s ADP employment change number. Investors will now be fully focused on this afternoon’s payrolls report for any signs of a downturn in labour market conditions. With the market consensus for the headline job creation number at a pretty lofty 180k, we think there is room for a downside surprise, which may drag the dollar even lower today.

The payrolls report will be released at 13:30 GMT (14:30 CET) today.

Euro Area retail sales contract again

Currency traders continue to largely overlook data out of the Euro Area in favour of political headlines.

Thursday’s retail sales numbers were pretty soft, with sales declining by 0.6% month-on-month, the fourth month in the past six that the measure has been in negative territory. While we still remain optimistic that a pick-up in activity in the bloc is more likely than not, a continuation in the downward trend that we are witnessing in domestic demand would be a highly concerning development that could encourage some of the more dovish members at the ECB to consider the need for more stimulus.

With economic data out of the Euro Area largely second-tier today, the common currency should be driven almost entirely by this afternoon’s payrolls report.