Sterling Rallies on Hopes of MPs Backing PM May's New Deal
What’s been happening?
Pound Sterling – UK Markets
The British pound started the week under a modest pressure ahead of Tuesday’s meaningful vote on the renegotiated Brexit deal. Citing a UK government official familiar with the matter, Bloomberg on Monday reported that Brexit talks were still deadlocked and British Prime Minister Theresa May had no plans yet to visit Brussels following her phone conversation with the EU’s Chief Brexit Negotiator Michel Barnier over the weekend.
However, reports of PM May travelling to Strasbourg to meet with European Commission President Juncker revived optimism of PM May coming back to the UK with a deal that Parliament could support. The positive sentiment provided a much-needed boost to the currency and helped it rise to its highest level in ten days vs the dollar. Speaking to reporters following her meeting with Juncker, Theresa May stated that she had secured legally binding changes to her Brexit deal. Several news outlets reported that a 2-page document was given to MPs explaining those changes on Monday evening. Although comments from MPs were mixed with opposition Labour’s leader Corbyn arguing that the agreement did not contain any changes and Cabinet Office minister Lidington saying the withdrawal agreement was now improved and stronger, the pound sterling preserved its strength and rallied to its highest level since May 2017 against the shared currency.
US Dollar – US Markets
The data published by the U.S. Census Bureau on Monday showed that retail sales in January rose by 0.2% on a monthly basis following December’s 1.6% decline and surpassed the market expectation for a no-change. Despite the upbeat data, however, the greenback struggled to attract investors’ attention and the US Dollar Index posted losses for the second straight day.
Although the 10-year Treasury-bond yield rose more than 1% in the day to help greenback limit its losses, the currency continued to correct last week’s rally ahead of tomorrow’s inflation report. The core-CPI, which excludes volatile food and energy prices, is expected to remain steady at 2.2% on a yearly basis in February.
Euro – European Markets
The shared currency was virtually unchanged against the dollar on Monday while weakening sharply vs the pound sterling. Speaking about the economic slowdown in the euro area to Corriere Della Serra, European Central Bank (ECB) Governing Council member Benoit Coeure said that the ECB didn’t see a recession at the moment and argued that the ECB was not reversing its course on the monetary policy, it was rather “adjusting to the new reality.”
The German daily, Handelsblatt, on Monday reported that the government was expected to bring 2019 economic growth expectations down to 0.8% from 1%. Meanwhile, Destatis reported that the trade surplus in Germany fell to €18.5 billion from €19.9 billion in January with exports staying unchanged in the month. Other data revealed that industrial production contracted by 0.8% on a monthly basis in January and dragged the annual growth rate down to -3.3% from -2.7%.
What’s coming up?
UK: The UK’s Office for National Statistics will release industrial/manufacturing production, trade balance and monthly (January) GDP growth data on Tuesday. More importantly, MPs will be voting on PM May’s renegotiated deal later in the evening.
US: Consumer Price Index (CPI) will highlight the U.S. economic calendar. Federal Reserve governor Lael Brainard is scheduled to deliver a speech as well.
EU: There won’t be any macroeconomic data releases from the euro area on Tuesday and investors will look for headlines coming out of the EcoFin meeting.