What’s been happening?

Pound Sterling – UK Markets 

The pound sterling recovered the majority of the losses it suffered against both the dollar and the euro on Tuesday. The British government on Wednesday announced temporary cuts to the import tariffs on agriculture and cars in case of a no-deal Brexit. The details of the announcement revealed that tariffs would be cut on finished vehicles rather than car parts and 87% of imports by value would become tariff-free. Addressing the media on the next steps, British Brexit Secretary Barclay argued that a no-Brexit was a bigger risk to the UK than a no-deal outcome and said that now it was up to the EU to decide how long any extension to Article 50 would be.   

Later in the day, lawmakers accepted the Spelman Brexit amendment A, which called for the government to rule out a no-deal Brexit, by a majority of 4 votes, 312 vs. 308. In the day’s second vote, lawmakers rejected the amendment F, which called for the government to pursue “managed no-deal exit” on May 22. Finally, lawmakers accepted the main Brexit motion, which called for the government to rule out no-deal under any scenario by a majority of 43 votes, 321 vs 278. Following the votes, British Prime Minister Theresa May noted that the House provided a clear majority against leaving the EU without a deal and said that there could be a second referendum but that would risk a “no Brexit at all.” Commenting on a possible extension of the Article 50, May said that the EU would agree to a short technical extension only if they had a deal.

US Dollar – US Markets

Following yesterday’s disappointing inflation data, the U.S. Bureau of Labor Statistics on Wednesday reported that the Producer Price Index (PPI) in February increased 0.1% on a monthly basis to fall short of the market expectation of 0.2% and dragged the annual rate down to 1.9% from 2% in January. Although other data from the U.S. revealed that durable foods orders in January increased by 0.4% to beat the analysts estimate of -0.5% by a wide margin, and the construction spending expanded by 1.3% in January following December’s 0.8% contraction, the greenback struggled to find demand. The US Dollar Index, which gauges the USD’s value against a basket of six major currencies, posted losses for the fourth straight day and slumped to its lowest level in a week.         

Euro – European Markets

The shared currency gained value vs the dollar on Wednesday and failed to preserve its strength against the pound sterling. Speaking at an event organised by economic policy think tank Itinerari Previdenziali in Rome, European Central Bank supervisor Ignazio Angeloni said that forward-looking indicators confirmed the economic slowdown in the euro area and added that the Italian recession was another factor weighing on the European economy. Regarding the ECB’s announcement of introducing fresh stimulus, “The terms of new TLTRO tenders will be defined in the best possible way to stimulate financing of the real economy,” Angeloni noted. On the same subject, ECB Governing Council Member Coeure said TLTROs were instruments that were “equal and accessible” everywhere.

Earlier in the day, the data published by the Eurostat showed that industrial production in the eurozone expanded by 1.4% on a monthly basis in January following December’s 0.9% contraction and surpassed the market expectation of 1%.  

What’s coming up? 

UK: There won’t be any macroeconomic data releases from the UK on Thursday and markets will be paying close attention to political headlines as lawmakers will be voting on Brexit extension.  

US: Weekly jobless claims, import/export price index, and new home sales data will be featured in the U.S. economic docket. 

EU: Germany’s Destatis will release its February inflation report on Thursday, which is expected to show that the annual CPI stayed unchanged at 1.6%.