Sterling Remains at the Mercy of Brexit Headline
What’s been happening?
Pound Sterling – UK Markets
The British pound recovered Thursday losses vs the greenback on Friday and recorded its highest weekly close since June 2018. Against the euro, sterling stayed relatively quiet for the second straight day in the absence of significant macroeconomic data releases from the UK.
On Brexit-related headlines, a spokesman for the government on Friday announced that the government will spell out next Brexit steps on Monday and reiterated that business should continue to prepare for a no-deal scenario. Later in the day, citing a French presidency official, Reuters reported that the EU27 will agree to a “technical short extension” to Article 50 negotiation period if the parliament were to approve Prime Minister Theresa May’s Brexit deal on Wednesday, March 20. Meanwhile, following the talks over the weekend, a Democratic Unionist Party (DUP) spokesman said issues remained to be addressed in their discussions with the government. According to BBC, "We are in discussions with the government to ensure Northern Ireland is not separated out from the rest of the United Kingdom as we leave the European Union. Contrary to some reports, we are not discussing cash,” the spokesman explained.
US Dollar – US Markets
The US Dollar Index failed to build on Thursday’s gains and slipped on Friday to close the week nearly 1% lower. The 10-year Treasury bond yield on Friday lost more than 1.5% and fell to its lowest level since the first week of January to weigh on the greenback.
Moreover, the data published by the Federal Reserve Bank of New York showed that the growth momentum of the manufacturing sector in the NY area weakened with the Empire State Manufacturing Index dropping 3.7 in March from 8.8 in February and missing the market expectation of 10. “Optimism about the six-month outlook was slightly lower than last month. The index for future business conditions edged down three points to 29.6,” the NY Fed further elaborated in its publication. Other data from the U.S. revealed that industrial production expanded by 0.1% in February to fall short of the analysts’ estimate of 0.4%.
Finally, the consumer confidence improved with the UoM Consumer Sentiment Index rising to 97.8 from 93.8. “The data indicate that real consumption will grow by 2.6% in 2019 and that the expansion will set a new record length by mid-year,” noted Surveys of Consumers chief economist, Richard Curtin.
Euro – European Markets
The shared currency posted small gains vs the dollar and weakened slightly against the pound sterling. The Eurostat on Friday announced that the inflation, as measured by the Consumer Price Index (CPI), rose 0.3% and 1.5% in February on a monthly and yearly basis, respectively. Moreover, the core CPI, which strips volatile food and energy prices, came in at 1% annually, and all these readings met experts’ forecasts. In the meantime, Germany’s Destatis said that the wholesale price index in February increased by 0.3% following January’s 0.7% decline.
Earlier in the day, ECB Governing Council Member Olli Rehn in a speech argued that the eurozone was not headed for a recession. “The central bank should conduct a systematic review of policy strategy. Unconventional tools have failed to have their desired effect,” Rehn added.
What’s coming up?
UK: Rightmove House Price Index will be the only data release from the UK on Monday.
US: NAHB Housing Market report will be featured in the U.S. economic docket.
EU: The Eurostat will publish January trade balance figures on Monday.