What’s been happening?

Pound Sterling – UK Markets 

The British pound rose vs the dollar for the fifth straight day on Friday and finished the week at its highest level since mid-October while suffering modest losses vs the euro. Earlier in the day, British finance minister Philip Hammond told Bloomberg that there was a majority in the House of Commons who wanted to prevent a no-deal outcome. “Both sides of this debate are still dug in and we all need to compromise to find a way forward,” Hammond added. Furthermore, reports of the EU weighing the option to give the UK additional time provided an additional boost to the pound sterling. In an interview with BBC, Andrea Jacqueline Leadsom, a British Conservative Party politician and the Leader of the House of Commons, said: “We can get the legislation through and I think we do, in spite of everything, have a very strong relationship with our EU friends and neighbours and I am absolutely certain that if we needed a couple of extra weeks or something then that would be feasible, that if they needed “a couple of extra weeks” to get the legislation through.

The only data released by the Confederation of British Industry on Friday revealed that retail sales volumes were unchanged on a yearly basis in January. “The outlook for the coming month is better, with retailers expecting sales volumes and orders to rise in the year to February,” the CBI added in its monthly CBI Distributive Trade Survey. 

US Dollar – US Markets

Although there were no macroeconomic data releases from the U.S., the greenback weakened sharply against its rivals on Friday with the US Dollar Index falling to a fresh 10-day low below the 96 mark. An article published by the Wall Street Journal claimed that the Fed could end the balance sheet reduction scheme earlier than expected to hint at a possible dovish message at this week’s FOMC meeting and weighed on the USD. 

Meanwhile, President Trump on Friday announced that they reached a deal to end the shutdown and reopen the federal government for a three-week period. According to reports citing people familiar with the decision, Trump is expected to declare a national emergency if he doesn’t get the fund needed for the border wall. Major equity indexes in the U.S. posted strong gains on the back of this development but the dollar struggled to recover its losses.  

Euro – European Markets

The shared currency rebounded sharply and erased all of its weekly losses against the dollar while recording small gains vs the British pound. Although it was not clear what drove the euro higher on Friday, end-of-week flows and the strong selling pressure surrounding the greenback may have ramped up the demand for the currency. 

Earlier on Friday, the ifo’s closely-watched Business Climate Index slumped to 99.1 in January from 101 in December and fell short of the market expectation of 100.6.   details of the report showed that both the Expectations Index and the Current Assessment Index retreated from their December levels. “Disquiet is growing among German businesses. The ifo Business Climate Index fell from 101.0 points in December to 99.1 points in January, dropping to its lowest level since February 2016. Companies assessed their current business situation slightly less favourably. Their business expectations also deteriorated sharply and turned pessimistic for the first time since December 2012. The German economy is experiencing a downturn,” the ifo noted in its press release.

What’s coming up? 

UK: The BoE Governor Mark Carney is scheduled to deliver a speech on Monday.  

US: Chicago Fed’s National Activity Index and Dallas Fed’s Manufacturing Survey will be featured in the U.S. economic docket on Monday.   

EU: The European Central Bank will publish private loans and M3 money supply data on Monday, which are likely to be ignored by the market participants.