What’s been happening?

Pound Sterling – UK Markets 

The pound sterling fell to its lowest level in a month against both the dollar and the euro on Thursday as lawmakers, once again, showed their lack of support for PM May’s EU divorce plan. 

British lawmakers rejected Prime Minister May’s main motion that aimed to reaffirm the support for her plan to seek changes to the Brexit deal by a majority of 45 votes. Shortly after, PM May’s office in a published statement said that the opposition Labour Party was making no-deal Brexit more likely by voting against the government and added that the defeat in Parliament was a sign that some conservative lawmakers were concerned about taking ‘no-deal’ off the table.

Commenting on the policy outlook earlier in the day, Dr Gertjan Vlieghe, a member of the Bank of England's Monetary Policy Committee, argued that around 25 bps rate hike a year was a “reasonable central case” if Brexit deal is done. “There is considerable uncertainty around my forecast for policy rate path. I can probably wait for evidence of growth stabilizing, inflation pressure rising before considering a rate hike,” Vlieghe told the audience at the Resolution Foundation in London. Regarding the policy reaction to a no-deal Brexit, Vlieghe reiterated that would look closely at inflation and expectations and business surveys before deciding on the next policy action. 

US Dollar – US Markets

Disappointing macroeconomic data releases from the United States on Thursday forced the US Dollar Index, which measures the greenback’s value against a basket of six major currencies, to retreat from the new 2019-high it set at 97.30 earlier in the day. Moreover, the 10-year Treasury Bond yield dropped nearly 2% on the day to further weigh on the currency. 

The U.S. Census Bureau on Thursday reported that retail sales declined by 1.2% on a monthly basis in December to miss the analysts’ estimate for a 0.2% increase. Further details of the report showed that sales excluding automobiles fell by 1.8%. Other data from the U.S. revealed that the annual PPI in January increased 2% following December’s 2.5% reading and weekly initial jobless claims rose by 4K to 239K in the week ending February 8. Commenting on the report, Federal Reserve governor Lael Brainard said that retail sales data was a ‘mess’. Regarding the policy outlook, Brainard argued that the balance sheet normalization process should come to an end later this year. 

Euro – European Markets

The selling pressure surrounding the dollar and the British pound on Thursday allowed the shared currency to find demand despite the uninspiring data. The Eurostat on Thursday reported that the GDP in the euro area expanded by 0.2% and 1.2% on a quarterly and yearly basis, respectively, matching market expectations and the previous estimates. Other data showed that employment in the eurozone increased by 1.2% in the fourth quarter. On the other hand, real GDP in Germany stagnated in the fourth quarter according to the Destatis’ flash estimates and brought the annual growth rate down to 0.9% from 1.1% recorded in the third quarter. Analyzing Germany’s economic performance, ZEW institute published an article on Wednesday highlighting that the Germany economy is likely to see moderate growth of around 1% in 2019. In its monthly bulletin on the economic assessment, the German Economy Ministry said that Brexit and the trade dispute were still a causing uncertainty while noting that the private consumption was likely to continue to drive the economic growth. 

What’s coming up? 

UK: The UK’s Office for National Statistics will release retail sales data on Friday, which is expected to show an increase of 0.2% in January.

US: NY Fed’s Empire State Manufacturing Index, industrial production, import/export price index, and the UOM’s Consumer Sentiment Index will be featured in the U.S. economic docket on Friday. Later in the day, Atlanta Fed President Bostic is scheduled to deliver a speech as well.  

EU: The Eurostat will publish the December international trade balance figures.