What’s been happening?

Pound Sterling – UK Markets 

The pound sterling suffered heavy losses vs both the greenback and the euro on Tuesday as lawmakers rejected British Prime Minister Theresa May’s tweaked Brexit deal. Attorney General Cox released his legal advice on the renegotiated Withdrawal Agreement in a statement that read: “The legal risk remains unchanged that if through no such demonstrable failure of either party, but simply because of intractable differences, that situation does arise, the United Kingdom would have, at least while the fundamental circumstances remained the same, no internationally lawful means of exiting the Protocol's arrangements, save by agreement," raising concerns over the MPs voting against the deal and triggered the initial selloff.   

After losing the vote by a majority of 149, PM May in a statement announced that a vote would be held on Thursday on extending Article 50 is the House were to decline to approve leaving the EU without a deal. Commenting on this development, “The EU has done everything it can to help get the Withdrawal Agreement over the line. The impasse can only be solved in the UK. Our “no-deal” preparations are now more important than ever before,” the EU’s Chief Brexit Negotiator Michel Barnier tweeted out. 

In the meantime, Tuesday’s upbeat data failed to help the currency. The UK’s Office for National Statistics on Tuesday reported that industrial production and manufacturing production expanded by 0.6% and 0.8% on a monthly basis in January, respectively, to surpass the market expectation for no-change. Additionally, the ONS announced that the real GDP expanded by 0.5% in January following December’s 0.4% contraction. Commenting on the data, “Across the latest three months, growth remained weak with falls in manufacture of metal products, cars and construction repair work all dampening economic growth. These were offset by strong performances in wholesale, IT and health services,” Head of GDP Rob Kent-Smith said. “This sluggish growth came despite the economy bouncing back from a weak December.” 

US Dollar – US Markets

Following a recovery attempt in the first half of the day, the US Dollar Index, which tracks the greenback against a basket of six major currencies, lost its traction and fell for the third straight day on Tuesday. 

The data published by the U.S. Bureau of Labor Statistics revealed that inflation, as measured by the Consumer Price Index (CPI), rose 0.2% on a monthly basis in February and brought the annual reading down to 1.5% from 1.6%. The core CPI that strips volatile food and energy prices ticked down to 2.1% annually and fell short of the market expectation of 2.2%. Other data from the U.S. showed that the NFIB’s Small Business Optimism Index improved slightly to 101.7 in February from 101.2 in January and came in below the analysts’ estimate of 102. In addition to disappointing data, a 1.5% drop witnessed in the 10-year Treasury bond yield weighed on the currency as well.         

Euro – European Markets

The shared currency took advantage of the selling pressure surrounding the dollar and the British pound and closed the day higher against these currencies despite a lack of macroeconomic data releases from the euro area. 

Citing sources familiar with talks, Reuters on Tuesday reported that the European Central Bank was unlikely to decide on the final TLTRO conditions before June. “The ECB committee proposed new TLTRO premium at 25 basis points above main refinancing rate but governors pushed back saying it was too high,” Reuters further elaborated.     

What’s coming up? 

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

US: Producer price index, durable goods orders, and construction spending data will be featured in the U.S. economic docket. 

EU: The Eurostat will release industrial production data on Wednesday. European Central Bank’s Executive Board members Mersch and Coeure will be delivering speeches.