What’s been happening?

Pound Sterling – UK Markets 

The pound sterling continued to gather strength on Tuesday on hopes of Article 50 getting extended and rose to its highest level since late September against the dollar while advancing to its strongest level since May 2017 vs the euro. 

British Prime Minister Theresa May on in her statement to Parliament on Tuesday acknowledged that the Brexit date might be delayed past March 29 and explained that they would hold a vote 2 days later on March 14 if the Parliament were to reject the revised Brexit agreement. Commenting on PM May’s remarks, an EU official stated that the EU would consider it favourably if the UK were to request a Brexit delay and argued that an extension of a couple of months would be relatively straight forward. On other political headlines, several news outlets reported that the opposition Labour Party was planning to bring the Cooper-Letwin amendment, known as the second referendum amendment, to a vote on Wednesday.

Earlier in the day, in February Inflation Report hearing, Bank of England Governor Mark Carney said that a no-deal Brexit would be inflationary and added that some tightening would be required in case of a sustained overshoot of inflation target.  

 US Dollar – US Markets

The greenback suffered heavy losses against its major rivals amid a sharp decline witnessed in the 10-year Treasury bond yield on Tuesday and the US Dollar Index dropped to its lowest level in three weeks.

The U.S. Census Bureau reported that the housing starts declined 11.2% in December and building permits rose 0.3%. Other data from the U.S. showed that the Consumer Board’s Consumer Confidence Index improved to 131.4 in February from 121.1 in January. “The Present Situation Index improved, as consumers continue to view both business and labor market conditions favorably,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Looking ahead, consumers expect the economy to continue expanding. However, according to The Conference Board’s economic forecasts, the pace of expansion is expected to moderate in 2019.” 

In his testimony before the Committee on Banking, Housing, and Urban Affairs, FOMC Chairman Jerome Powell reiterated that current economic conditions were healthy and the economic outlook was favourable but they were observing some conflicting signals and crosscurrents in the past few months. Regarding the policy outlook, Powell said that the Fed could stay patient and wait and see how the situation evolved. “We want to use the Fed's tools to sustain expansion, keep the labour market strong and inflation near 2%,” Powell explained.

Euro – European Markets

For the third straight day, the shared currency rose against the dollar and weakened vs the pound sterling. The only data from the euro area on Tuesday showed that the Gfk Consumer Confidence Index in Germany is expected to stay unchanged at 10.8 in March. “The gap between economic and income expectations widened again in February. While income expectations have retained their extremely good level, the economic indicator has continued its steep downward spiral unabated,” the Gfk said in its publication.

Earlier in the day, European Central Bank (ECB) Governing Council member Philip Lane in a speech said that there had been a sequence of negative shocks recently and explained a data-dependent strategy would provide flexibility. “The current policy can cater to limited downside revision,” Lane said.

What’s coming up? 

UK: There won’t be any macroeconomic data releases from the UK on Wednesday and investors will stay focused on political headlines.

US: Durable goods orders, goods trade balance, pending home sales, and factory orders data will be featured in the U.S. economic docket. More importantly, Federal Reserve Chair Jerome Powell will be speaking on the second day of his testimony before the Congress. 

EU: The European Commission will publish its latest business and consumer survey, which will include services sentiment, consumer confidence, business climate, industrial confidence, and economic sentiment indicator.