What’s been happening?

Pound Sterling – UK Markets 

The British pound weakened vs the dollar and stayed relatively calm against the euro on Thursday as investors moved to the sidelines to assess the political situation in the UK and the potential impact of the Brexit extension on the economy. 

Speaking to lawmakers in the House of Commons, British Prime Minister Theresa May acknowledged that reaching a cross-party Brexit agreement will not be easy and added that both sides need to compromise to reach an agreement. Later in the day, Bank of England Governor Carney argued that the risk of a no-deal Brexit got lowered by last night’s agreement and said noted that a no-deal Brexit would cause the first supply shock for an advanced economy in at least 40 years.

US Dollar – US Markets

The US Dollar Index, which tracks the dollar’s value against a basket of six major currencies, gained traction on Thursday and recovered a large part of this week’s losses supported by upbeat macroeconomic data releases.

In its weekly report, the U.S. Department of Labor announced that initial jobless claims dropped to its lowest level since 1969 at 196,000. Additionally, the Bureau of Labor Statistics reported that the Producer Price Index rose 2.2% on a yearly basis in March to surpass the market expectation of 1.9%. “For the 12 months ended in March, prices for final demand less foods, energy, and trade services rose 2.0 percent,” the BLS further said in its publication.

In a speech delivered on Thursday, Federal Reserve's Vice Chair Richard Clarida argued that the U.S. economy was in a good place despite the recent slowdown. In the meantime, while delivering his prepared remarks at an event in Mississippi, St. Louis Fed President James Bullard said that the FOMC’s March meeting marked the end of the policy normalization. “Treasury curve has flattened significantly, a meaningful, sustained inversion would send a bearish signal,” Bullard added. “Changes to monetary policy will owe to new data and not normalization strategy.”   

Euro – European Markets

The only data from the euro area on Thursday showed that inflation in Germany, as measured by the Consumer Price Index, stayed unchanged at 1.3% and 0.4% in March on an annual and monthly basis, respectively, to match the market expectation.

Later in the day, European Central Bank (ECB) Governing Council member and Bank of France Head Villeroy said that the economy in the euro area was continuing to slow down but there was no recession yet. Commenting on the policy outlook, “We said clearly we are determined to be as accommodative as needed for as long as necessary,” Villeroy said to echo President Draghi’s remarks. Meanwhile, the ECB’s survey of professional forecasters showed that the real GDP growth expectation dropped to 1.2% from 1.5% in the previous estimate for 2019 and to 1.4% from 1.5% for 2020. 

What’s coming up? 

UK: There won’t be any macroeconomic data releases from the UK on Friday.

US: Import price index, export price index, and the University of Michigan’s Consumer Sentiment Survey will be released from the U.S.

EU: Wholesale Price Index from Germany and the eurozone industrial production data will be featured in the European economic docket on Friday.