What’s been happening?

Pound Sterling – UK Markets 

The British pound recorded modest losses vs both the dollar and the euro on Monday ahead of tomorrow’s Parliamentary vote on British Prime Minister Theresa May’s ‘Brexit Plan B’. While speaking to reporters, PM May’s spokesman said that they would like to have a second meaningful vote as soon as possible and added that they were still working on how to address concerns over the Northern Irish backstop issue. Later in the day, the spokesman explained that the PM was not ruling out reopening the withdrawal agreement.

Meanwhile, the EU's Deputy Negotiator, Sabine Weyand, repeated that the Brexit negotiations between the UK and the EU were over and said that it was hard to see how the UK can get the support of the majority for a deal. “Customs union in the backstop was an explicit UK demand. We won’t reopen the withdrawal agreement,” Weyand added. 

On other Brexit-related headlines, a poll of more than 3,000 consumers by YouGov revealed that the consumer confidence in the UK in the fourth quarter fell to its weakest level in 18 months at -9 from -7 in the third quarter amid Brexit uncertainty and worries about the economic slowdown.  

US Dollar – US Markets

The dollar continued to weaken against the euro but was able to recover a small portion of last week’s losses vs the pound sterling. The Chicago Fed’s National Activity (CFNAI) Index improved slightly to 0.27 in December from 0.21 in November. “Employment-related indicators contributed +0.11 to the CFNAI in December, up slightly from +0.10 in November. Total nonfarm payrolls rose by 312,000 in December after increasing by 176,000 in the previous month. However, the unemployment rate increased to 3.9 percent in December from 3.7 percent in November,” the Chicago Fed noted in its publication. Other data from the U.S. revealed that the manufacturing sector in the Texas region expanded in January with the Dallas Fed’s Manufacturing Index rising to 1 from -5.1 in December.  

Despite the upbeat data, a report published by the U.S. Congressional budget office highlighted the negative impact of the government shutdown on the economy and weighed on the dollar. “CBO estimates that the partial shutdown delayed $18 billion in federal spending and suspended some federal services, thus lowering the projected level of real GDP in the first quarter of 2019 by $8 billion (in 2019 dollars), or 0.2 percent," the CBO said. 

Euro – European Markets

The shared currency posted modest gains against its major rivals on Monday. According to the monthly data published by the European Central Bank, private loans grew by 3.3% on a yearly basis in December to fall short of the market expectation of 3.4%. Other data showed that M3 money supply expanded by 4.1% in the same period.  

Later in the day, while testifying before the European Parliament, Mario Draghi, President of the ECB, repeated that significant monetary policy stimulus was still essential to support the core inflation rise in the medium-term. Echoing his comments from last week’s press conference, “The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner,” Draghi said.       

What’s coming up? 

UK: The UK Parliamentary vote on Brexit Plan B is expected to take place in the evening on Tuesday.  

US: The S&P/Case-Shiller Home Price Index will be published in the U.S.   

EU: The European economic docket will feature PPI data from Italy and the labour market report from Spain.