What’s been happening?

Pound Sterling – UK Markets 

The British pound struggled to find direction on Tuesday and closed the day little changed against its major rivals. During an interview with BBC Radio, British Brexit Secretary Stephen Barclay said that the government had constructive talks with the DUP and added that pro-Brexit MPs could see the growing risk of a no-deal Brexit. Later in the day, while delivering his remarks on Brexit in a press conference at the EU General Affairs Council, “In the absence of ratification of this agreement, we are now faced with genuine uncertainty,” European Union's Chief Brexit Negotiator, Michel Barnier, stated. Regarding a possible extension to Article 50, Barnier explained that a long extension would need to be linked to “a new political process in the UK.”

The data published by the UK’s Office for National Statistics (ONS) on Tuesday revealed that the unemployment rate in January ticked down to 3.9% from 4% in December and the claimant count change came in at +27,000 in February, worse than the market expectation of 2,700. Regarding the wage inflation, “Including bonuses, average weekly earnings for employees in Great Britain were estimated to have increased by 3.4%, before adjusting for inflation, and by 1.5%, after adjusting for inflation, compared with a year earlier,” the ONS said. Excluding bonuses, average weekly earnings also rose by 3.4% in the same period.   

US Dollar – US Markets

The dollar continued to weaken against its rivals on Tuesday with investors pricing dovish FOMC announcements on Wednesday. Many experts see the Fed updating its dot plot to show either one rate hike or none in 2019 from two rate hikes seen in December. The only data from the U.S. showed that factory orders in January increased by 0.1% on a monthly basis and fell short of the analysts’ estimate of 0.3%. Nevertheless, a modest rebound witnessed in the 10-year Treasury bond yield helped the US Dollar Index limit its losses.

Meanwhile, Wall Street came under pressure after the U.S. trade representative said some of the officials saw China "walking back trade offers." However, citing sources familiar with talks, Dow Jones reported that the trade talks were in their final stages and China Vice Premier Liu was expected to visit Washington soon to help stock markets close the day with modest gains.

Euro – European Markets

The shared currency rose modestly vs the dollar and stayed unchanged against the pound sterling on Tuesday. The data published by the Eurostat revealed that the labour cost in the fourth quarter in the euro area increased 2.3% to fall short of the market expectation of 2.7% and the construction output contracted by 1.4% on a monthly basis in January.

On the other hand, the ZEW’s Economic Sentiment Index for Germany improved to -3.6 in March from -13.4 in February and to -2.5 from -16.6 for the euro area. Commenting on the survey, “The significant increase in the ZEW Indicator of Economic Sentiment shows that major economic risks are considered to be less dramatic than before,” ZEW President Professor Achim Wambach noted. “The possible delay in the Brexit process, as well as the renewed hope for a deal on the UK’s withdrawal from the EU, seem to have given rise to more optimism among financial market experts. Progress made in the negotiations between China and the US to end the trade war between the two nations may also have contributed.”

What’s coming up? 

UK: The UK’s Office for National Statistics will release the inflation report, which will include the Consumer Price Index (CPI), the Producer Price Index (PPI) and the Retail Price Index (RPI) readings, on Wednesday.  

US: The FOMC will announce its interest rate decision and publish the monetary policy statement alongside the updated economic projections. 

EU: There won’t be any macroeconomic data releases from the euro area on Wednesday.