What’s been happening?

Pound Sterling – UK Markets 

The pound sterling struggled to gain traction on Thursday and closed the day virtually unchanged against both the shared currency and the dollar. The only data from the UK on Thursday revealed that public sector net borrowing declined by £15.7 billion in January after rising £2.15 billion in December and was largely ignored by market participants.

On Brexit-related headlines, several news outlets reported that a UK official was quoted saying that reaching a Brexit deal by next week was unlikely. Later in the day, a government spokesman said that the EU-UK Brexit talks would continue next week. EU's Juncker, UK PM May agreed that work would now focus on guarantees relating to the backstop that underline once again its temporary nature as well as alternative arrangements and the political declaration, to reach a mutually acceptable agreement," the spokesman explained. 

On the other hand, European Commission First Vice President Frans Timmermans told reporters that the risk of the UK leaving the EU without a deal had increased. “Saying Brexit won't happen without having an alternative is like King Canute holding back the waves,” Timmermans commented.

 US Dollar – US Markets

Despite the mixed macroeconomic data releases from the United States, the US Dollar Index staged a modest rebound on Thursday supported by a more-than-1% increase in the 10-year Treasury Bond yield. 

The U.S. Census Bureau on Thursday reported that durable goods orders in December increased by 1.2% on a monthly basis and fell short of the market expectation of 1.5%. Other data revealed that initial jobless claimed decreased by 23K to 216K in the week ending February 16. Finally, the IHS Markit’s advanced PMI report showed that the manufacturing sector lost momentum in February but the business activity in the service sector expanded at a more robust pace than expected in the same period. “February data provides a positive signal for first quarter economic growth, with US businesses reporting the fastest output expansion since the middle of 2018,” Tim Moore, Associate Director at IHS Markit said. “Relatively strong domestic business conditions mean that US manufacturers remain on a much more positive trajectory than the recent downbeat production trends signalled by IHS Markit’s Manufacturing PMI surveys across Europe and Asia.”

Euro – European Markets

The euro recorded small losses vs the greenback and remained steady vs the pound sterling on Thursday as the ECB meeting minutes didn’t offer any fresh clues regarding the rate outlook. “Incoming data on growth had continued to be weaker than expected on account of softer external demand and country and sector-specific factors, with the near-term growth momentum likely to be weaker than previously anticipated,” the ECB reiterated. “The Governing Council reiterated that it expected the key ECB interest rates to remain at their present levels at least through the summer of 2019.”

In the meantime, Germany’s Destatis announced that the annual CPI stayed unchanged at 1.4% in January as expected. Additionally, the IHS Markit’s preliminary Manufacturing PMI dropped to 47.6 in February to suggest that the sector is likely to continue to contract. Similarly, eurozone Manufacturing PMI also dropped below the 50 mark. “The weakness is being led by manufacturing, which has now entered its first downturn since mid2013. With factory order books deteriorating at an increased rate, the rate of contraction in the goods-producing sector will likely worsen in coming months,” Chris Williamson, Chief Business Economist at IHS Markit explained.

What’s coming up? 

UK: The CBI’s Distributive Trades Survey (realized) will be the only data published in the UK on Friday.

US: The FOMC will publish its semiannual Monetary Policy Report to the Senate Committee on Banking, Housing, and Urban Affairs and to the House Committee on Financial Services on Friday. FOMC members Williams, Clarida, Quarles, and Bullard will be testifying as well.  

EU: The Ifo Institue will release the Business Climate, Current Assessment, and Expectations indexes for Germany on Friday. Fourth-quarter GDP growth from Germany and the euro area inflation report will also be featured in the European economic docket.