What’s been happening?

Pound Sterling – UK Markets 

The British pound advanced to its highest level since late November against the dollar on Friday and posted strong gains vs the euro on latest Brexit headlines. The Evening Standard reported that Cabinet Ministers were considering the option of delaying Brexit beyond the official date of March 29 as they were doubtful that the remaining time would be enough to pass six essential bills. On the same note, Austrian Chancellor Kurz told reporters that if there was no progress on Brexit, a delay would be the only option.

Earlier in the day, British Foreign Secretary Jeremy Hunt stated that it would be a fundamental breach of trust if they failed to deliver Brexit and added that it would be “absolutely unacceptable” for the government to lose next week’s vote.Furthermore, European Commission President Jean-Claude Juncker said that he was still hopeful there would be a Brexit deal. “There can be a clarification of Brexit deal, not a renegotiation, especially not of Irish backstop,” Juncker said. Meanwhile, in a report published on Friday, the Confederation of British Industry's (CBI) head Carolyn Fairbairn argued that a no-deal Brexit would cause the GDP to contract by up to 8% and put thousands of jobs at risk. “Businesses would face new costs and tariffs. Our ports would be disrupted, separating firms from the parts they need to supply their customers,” Fairbairn told The Guardian. 

Finally, the data published by the UK’s Office for National Statistics revealed that manufacturing production and industrial production declined by 0.3% and 0.4% on a monthly basis, respectively, while the monthly GDP growth in November came in at 0.2% to surpass the market expectation of 0.1%.

US Dollar – US Markets

The U.S. Bureau of Labor Statistics on Friday reported that the CPI fell 0.1% on a monthly basis in December and dragged the annual rate down to 1.9% from 2.2% in November. The core CPI, which excludes volatile food and energy prices, stayed unchanged at 2.2% on a yearly basis to match analysts’ estimates. With inflation figures not offering any surprises, the US Dollar Index extended its recovery and recorded modest gains on a daily basis on Friday. In the meantime, reports of President Donald Trump looking to end the government shutdown as early as next week amid potential negative impacts on the economy provided additional support to the greenback.            

Euro – European Markets

With European investors staying focused on Brexit headlines, the shared currency struggled to find demand and weakened against both the dollar and the pound sterling on Friday. Furthermore, the fact that there no macroeconomic data releases from the euro area made it even more difficult for the euro to grab markets’ attention. 

Commenting on the monetary policy outlook, European Central Bank (ECB) Governing Council member Ewald Nowotny explained that the narrative outlined in December meeting was valid and argued that they could still expect a rate hike this year. Nowotny further argued that the growth rate was expected to soften in 2019 but was likely to stay in the positive territory. To complement these remarks, ECB's Governing Council member and Slovak central bank Governor, Jozef Makúch, said that they shouldn't’ over-interpret the weak data from the fourth quarter of 2018 and added that readings from Germany didn’t point to a recession. 

What’s coming up? 

UK: There won’t be any macroeconomic data releases from the UK on Monday and markets will be paying close attention to Brexit headlines. 

US: With no data from the U.S., Wall Street’s performance and government shutdown will be in the limelight.  

EU: Eurozone industrial production will be the only data featured in the European economic docket on Monday.