British Pound Gains Traction on Hopes of PM May Postponing Brexit
What’s been happening?
Pound Sterling – UK Markets
The British pound gathered strength against both the euro and the dollar on Monday after Labour Party’s Jeremy Corbyn said that his party would support a second referendum to stop a no-deal Brexit and announced that they have decided to support the Cooper-Letwin amendment that seeks to take the no-deal Brexit off the table. Corbyn stated that ‘one way or another’ they will do everything in their power to prevent a no-deal. Additionally, reports of PM May considering a plan to postpone Brexit provided an extra boost to the currency in the late evening regardless of the earlier headlines suggesting otherwise.
Government Junior Minister Tobias Ellwood argued that they were facing the prospect of having to extend Brexit. Citing an unnamed UK government official, however, Bloomberg on Monday reported that British Prime Minister Theresa May didn’t believe extending Brexit would solve any issues. Later, commenting on the same issue while speaking to reporters following his meeting with PM May, European Council President Donald Trump argued that extending Article 50 would be a rational solution. During the same press conference, “an extension to Article 50 does not deliver a decision in Parliament on Brexit,” PM May noted, who is expected to make a statement to the House of Commons when she returns on Tuesday between 14 - 15 GMT. Meanwhile, in his prepared remarks, Bank of England Governor Carney didn’t deliver any comments on the near-term policy outlook.
US Dollar – US Markets
The Federal Reserve Bank of Chicago on Monday reported that the National Activity Index dropped to -0.43 in January from 0.05 in December. “Thirty-five of the 85 individual indicators made positive contributions to the CFNAI in January, while 50 made negative contributions,” Chicago Fed said in its publication. Other data from the U.S. showed that wholesale inventories increased by 1.1% in December to surpass the market expectation of 0.3% and the business activity in Texas’ manufacturing sector expanded at a more robust pace than expected in February with the Dallas Fed Manufacturing Index improving to 13.1 from 1 in January.
Although the mixed data didn’t allow the dollar to gather strength against its rivals, a sharp upsurge seen in the 10-year T-bond yield on renewed trade optimism helped the currency remain resilient. President Trump on Monday announced that he decided to postpone the increase in tariffs imposed on Chinese imports. “China Trade Deal (and more) in advanced stages. Relationship between our two Countries is very strong. I have therefore agreed to delay U.S. tariff hikes. Let’s see what happens?” Trump tweeted out.
Euro – European Markets
The euro weakened against the pound sterling while posting modest gains vs the greenback on Monday as investors paid little to no attention to the currency amid a lack of macroeconomic data releases from the eurozone. Later this week, inflation data from the euro area and Germany, and the European Commission’s consumer confidence report could impact the shared currency’s market valuation.
What’s coming up?
UK: BBA Mortgage Approvals will be published on Tuesday. More importantly, PM May’s speech in the House of Commons and the Inflation Report Hearings will be watched closely by market participants.
US: Housing starts, building permits, S&P Case-Shiller House Price Index, CB Consumer Confidence, and Richmond Fed Manufacturing Index will be released from the United States. Federal Reserve Chair Jerome Powell’s 2-day testimony before the Congress will start on Tuesday as well.
EU: Gfk Consumer Confidence Index from Germany will be the only data featured in the European economic calendar. ECB Governing Council member Mersch is also expected to deliver a speech on Tuesday.