Eyes on Sterling Pound as PM May Delays Brexit Vote
What’s been happening?
Pound Sterling – UK Markets
For the third straight day on Friday, the British pound struggled to make a decisive move against the dollar and posted small gains vs the euro. The only data from the UK showed that retail sales stayed unchanged on a monthly basis in February according to the CBI Distributive Trades Survey. On an optimistic note, “Looking ahead, retailers’ expectations regarding the business situation have stabilised for the first time in a year. Sales volumes are expected to pick up sharply in the year to March, with growth expectations at the highest since October 2015,” the CBI said in its publication.
Meanwhile, the EU’s Chief Brexit Negotiator, Michel Barnier, told reporters that he was more worried than before ‘on the potential for a hard Brexit,’ and reiterated that they could not exclude the possibility of a Brexit delay. Later in the day, the Guardian newspaper reported that British cabinet ministers want Prime Minister Theresa May to stand down after the local elections in May and let the next phase of Brexit negotiations be handled by a new leader.
Over the weekend, speaking to reporters before travelling to attend the EU-Arab League summit in Egypt, Prime Minister May announced that the meaningful vote will take place on March 12 and positive talks with the EU were still ongoing.
US Dollar – US Markets
Following Thursday’s modest recovery, the US Dollar Index lost traction on Friday and closed the day with losses pressured by yet another more-than-1% drop witnessed in the 10-year Treasury bond yields.
In its semi-annual monetary policy report to Congress, the Federal Reserve explained that softer conditions late in 2018 and muted inflation warranted a patient approach to further rate increases. “Potential downside risks to international financial stability include political and policy uncertainty and intensification of trade tensions,” the publication read. In the meantime, St. Louis Fed President James Bullard said that he did not ‘pencilled in’ a rate cut for this year and Fed vice chair Richard Clarida stated that the Fed would start reviewing new tools to be used in case the policy needs to ease further, both officials adopting a dovish tone to weigh on the greenback.
Euro – European Markets
The shared currency suffered moderate losses against both the pound sterling and the dollar on Friday amid disappointing macroeconomic data releases from Germany. Although the Destatis’ Q4 GDP growth came in line with analysts’ estimate of 0%, the Ifo Institute’s sentiment data revealed that the confidence continued to deteriorate in February. “Worries in the German business world continue to grow. The Ifo Business Climate Index fell from 99.3 points in January to 98.5 points in February. This is the lowest level since December 2014. Companies again assessed their current business situation somewhat less favorably. Pessimism regarding the six–month outlook has also increased,” the Ifo Institute said. Furthermore, commenting on the German growth outlooks, European Central Bank (ECB) Governing Council member Ewald Nowotny said that Germany’s growth expectations were likely to be revised down.
Other data on Friday showed that the core CPI in the eurozone declined by 1.5% on a monthly basis in January and the annual rate stayed relatively steady at 1.1%, both data coming in line with market expectations.
What’s coming up?
UK: Bank of England Governor Mark Carney is scheduled to deliver a speech at 10 GMT on Monday.
US: The Chicago Fed National Activity Index, wholesale inventories, and the Dallas Fed Manufacturing Business Index will be featured in the U.S. economic docket.
EU: There won’t be any macroeconomic data releases from the euro area on Monday.