What’s been happening?

Pound Sterling – UK Markets 

The British pound dropped to its lowest level against the dollar since February 19 and stayed relatively quiet vs the shared currency on Tuesday as the lack of macroeconomic data releases from the UK left the currency at the mercy of its rivals’ market valuation. Earlier in the day, British Prime Minister Theresa May's spokesman reiterated that the PM's focus was passing the withdrawal agreement bill. Commenting on cross-party talks, the spokesman said that both sides, Labour party and the government, needed to compromise in order to reach a deal. On the other hand, according to The Guardian, the Labour party said PM May has not yet offered any substantial changes to her Brexit deal.

US Dollar – US Markets

The US Dollar Index, which gauges the dollar’s value against a basket of six major currencies, extended its rally and advanced to its highest level since June 2017 on Tuesday. Strong first-quarter earnings figures from large corporations in the U.S. eased concerns over an economic slowdown and allowed investors to start pricing expectations of a hawkish shift in the FOMC’s forward guidance. The S&P 500 on Tuesday rose to 2936 points before closing at 2933 and is now a touching distance away from the record high that was set at 2940 back in October. Additionally, the Nasdaq Composite gained more than 2% on a daily basis.

Meanwhile, the data from the U.S. showed that new home sales in March increased by an impressive 4.5% to beat the analysts’ estimate for a decline of 2.5%. Additionally, the Richmond Fed’s Manufacturing Index dropped to 3 in April from 10 in March to show that the business activity in the manufacturing sector expanded at a slower pace.   

Euro – European Markets

The shared currency failed to stay resilient against the dollar on Tuesday and fell below 1.12 to close in on the 2019 trough of 1.1175. The only data from the euro area showed that the consumer sentiment continued to weaken in April with the European Commission’s Consumer Confidence Indicator (flash) slumping to -7.9 in April and missing the market estimate of -7. “In April 2019, the DG ECFIN flash estimate of the consumer confidence indicator dropped in both the euro area (0.7 points down) and the EU (0.6 points down). At −7.9 points (euro area) and −7.7 points (EU), both indicators remain well above their respective long-term averages of −11.3 (euro area) and −10.4 (EU),” the EC said in its press release.

Earlier in the day, in an interview with Frankfurter Allgemeine Zeitung, European Central Bank (ECB) Governing Council member Benoit Coeure repeated that the ECB did not except a recession but said it was true that economic slowdown in Germany was stronger than initially anticipated. “Markets pricing in a rate hike by the ECB only in late 2020 is reflective of a different assessment shared by the governing council,” Coeure further added. “The ECB's economic projections ”will be revised in June.”

What’s coming up? 

UK: The UK’s Office for National Statistics will release the public sector net borrowing data on Wednesday. Markets will also be looking for headlines surrounding the Brexit talks between the government and the Labour party.

US: The only data from the U.S. will be the MBA mortgage applications, which is likely to be ignored by the participants. Investors will be keeping an eye on the Wall Street rally.

EU: The Ifo Institute will release the Current Assessment, Business Climate, and Expectations indexes for Germany on Wednesday. Furthermore, the European Central Bank will publish its monthly Economic Bulletin.