What’s been happening?

Pound Sterling – UK Markets 

The pound sterling weakened against the dollar and the euro on Tuesday as it struggled to find demand following the mixed labour market report and latest Brexit headlines.

The UK’s Office for National Statistics (ONS) on Tuesday reported that the ILO unemployment rate stayed unchanged at 3.9% in February as expected while the claimant count change came in at 28.3K for March, worse than the analysts’ estimate of 20K. “Including bonuses, average weekly earnings for employees in Great Britain were estimated to have increased by 3.5%, before adjusting for inflation, and by 1.6%, after adjusting for inflation, compared with a year earlier,” the ONS further revealed in its publication. Excluding bonuses, earnings rose 3.4% on a yearly basis. 

The Guardian on Tuesday claimed that talks between the UK government and the opposition Labour party had stalled. Although a spokesman for the Labour party quickly responded by denying the report, the currency stayed under modest selling pressure.

US Dollar – US Markets

The US Dollar Index closed the day in the positive territory on Tuesday as the greenback staged a technical recovery in the absence of significant fundamental drivers.

The only data published by the Fed on Tuesday revealed that industrial production in the U.S. contracted by 0.1% on a monthly basis in March to miss the analysts' expectation for an expansion of 0.2%. Capacity utilization in the same period edged down to 78.8% from 79% in February. “Manufacturing production was unchanged in March after declining in both January and February,” the Fed noted in its press release.

Earlier in the day, Boston Fed President Eric Rosengren said that he was not in favour of the Fed using negative rates and argued that financial stability concerns were not large enough to warrant further measures to slow the economy. “The US has more flexibility to expand balance sheet and run deficits than other countries, but can still risk losing market's confidence,” Rosengren said.

Euro – European Markets

The euro fell vs the dollar on Tuesday and posted small gains against the British pound. The data from Germany showed that the ZEW Economic Sentiment Index rose to 3.1 in April from -3.6 in March to record its first positive reading since March 2018. On a similar note, the same indicator for the Euro zone improved to 4.5 from -2.5 in March to beat the market expectation of 1.2. However, the Current Situation Index in Germany slumped to 5.5 to miss the analysts' estimate of 8, making it difficult for the shared currency to take advantage of the upbeat sentiment data.

Commenting on the ZEW's survey for Germany, "The slight improvement is largely based on the hope that the global economic environment will develop less poorly than previously assumed. The postponement of the Brexit deadline may also have contributed to buoy the economic outlook,” ZEW President Achim Wambach said.

In the meantime, citing unnamed sources with direct knowledge of the matter, Reuters on Tuesday reported that several ECB policymakers questioned the bank's growth projection model and voiced their scepticism about the accuracy of the forecast pointing out to a recovery in the second half of the year.    

What’s coming up? 

UK: The UK’s Office for National Statistics will release the inflation report on Wednesday, which will consist of the Consumer Price Index, Producer Price Index, and Retail Price Index. Analysts expect the CPI to tick up 2% in March from 1.9% in February.

US: February trade balance data will be featured in the U.S. economic docket. Later in the day, the Fed will release its Beige Book.

EU: The Eurostat will publish the trade balance and Consumer Price Index data for the eurozone on Wednesday.