What’s been happening?

Pound Sterling – UK Markets 

The British pound fell to its weakest level against the euro in a month on Thursday and lost around 1% vs the dollar as Brexit headlines continued to weigh on the currency. Speaking to reporters ahead of her meeting with European leaders, British Prime Minister Theresa May said that a short extension to Article 50 would give them the opportunity to leave the EU with a negotiated deal. Responding to May’s remarks, European Union's Chief Brexit Negotiator, Michel Barnier, reiterated that an extension would be conditional on the British Parliament accepting the PM’s Brexit deal. Regarding the third meaningful vote, Northern Ireland’s Democratic Unionist Party (DUP) lawmaker Sammy Wilson said that the party was not any closer to backing the PM’s deal.  “There is no point in us agreeing to something that is not going to be backed by the majority,” Wilson explained.

Citing a draft statement, several news outlets reported that the EU was planning to grant an extension until May 22, the latest date that the UK could stay in the EU without taking part in the European election,  provided that the withdrawal agreement is approved by the House of Commons next week. 

Earlier in the day, the ONS reported that retail sales in February increased by 0.4% on a monthly basis to beat the market expectation for a decline of 0.4%. Meanwhile, the Bank of England left its policy rate unchanged at 0.75% and kept the asset purchase facility steady at €435 billion as expected. “The economic outlook will continue to depend significantly on the nature and timing of EU withdrawal,” the BoE said in its policy statement and repeated: “The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction.”   

US Dollar – US Markets

After falling to its lowest level since early February on Wednesday, the US Dollar Index, which tracks the dollar’s value against a basket of six major currencies, retraced its losses on Thursday and closed the day with strong gains.

The data published by the U.S. Bureau Labor Statistics showed that initial weekly jobless claims decreased by 9,000 in the week ending March 15 to 221,000. Additionally, the Federal Reserve Bank of Philadelphia in its latest Manufacturing Business Outlook Survey reported that the manufacturing activity index improved to 13.7 in March from -4.1 in February and surpasses the analysts’ estimate of 4.5. “Most of the survey’s indexes for future conditions continued to moderate, but the firms remained generally optimistic about growth over the next six months,” Philly Fed noted in its publication.

Euro – European Markets

The shared currency erased the gains it recorded against the dollar on Wednesday and closed the day modestly higher vs the pound sterling. In its monthly economic bulletin, the European Central Bank said that the underlying inflation in the euro area continued to be muted and March decisions were aimed at lifting inflation towards the foal. “Data points to sizable moderation in growth momentum,” the ECB said. Later in the day, the European Commission’s latest business and consumer survey showed that the Consumer Confidence Index improved slightly to -7.2 in March from -7.4 in February. 

What’s coming up? 

UK: The Bank of England will publish its Quarterly Inflation Report for the first quarter.  

US: Existing home sales, wholesale inventories, and the IHS Markit’s Manufacturing and Services PMI reports will be featured in the U.S. economic docket on Friday. 

EU: The IHS Markit will release Manufacturing and Services PMI data for the euro area, Germany, and France. The European Central Bank will publish January current account figures as well.