Sterling has been volatile today, weakening to the US Dollar this morning ahead of chief Brexit negotiator David Davis’ speech in Vienna. There were also concerns after it was reported that the UK might withhold paying an exit bill if the EU refuses to deliver the trade deal the UK wants. The Pound rallied on news that the European Parliament is prepared to offer the UK “privileged” single market access which reduces the likelihood of a hard Brexit.

The US Dollar has rebounded from three-year lows, recovering 1.5% in value since Friday. The Dollar fell on fears that runaway inflation could be the consequence of president Trump’s plans to cut taxes and increase spending. Later this week, Federal Reserve speeches may help lift the US currency, however, the US government bond auctions will be a test of investor confidence in US debt.

Pound Sterling – UK Markets

The Pound has picked up strength against the US Dollar, with the exchange rate at $1.39. Sterling is stronger against the Euro, exchanging at €1.13.

Today’s Brexit developments began with a focus on chief Brexit negotiator David Davis’ speech in Vienna today. In the government’s second “road to Brexit” speech, Davis sought to reassure critics that the UK intends maintain “mutual recognition” of regulations after Brexit. Davis also argued for mutual trust, as news broke that Prime minister Theresa May is looking into a contingency plan to hold back making a Brexit exit payment if the UK does not receive the trade deal it was promised.

Business Insider reports that the European Parliament is preparing a “detailed” 60-paragragh resolution that calls for more flexibility in future negotiations with the UK. This would include negotiating an “association agreement” which allows the UK to keep access to the single market and remain in EU agencies. It was reported that these plans were revealed to British MPs meeting in Brussels this week.

Yesterday another 152 Carillion workers were made redundant, bringing the total of lost jobs to 1,141. The Official Receiver, which is handling the liquidation, has saved a total of 7,641 jobs, while over 10,000 Carillion workers still face job insecurity. On Thursday, the Commons business committee will question the collapsed outsourcing firm’s auditor KPMG to investigate why they rated the company’s finances, as “best in class,” according to the testimony of former directors.

US Dollar – US Markets

The Euro has lost ground to the US Dollar, exchanging at $1.23. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, is up, at 89.62.

The US Dollar lost 12% of its value since the start of 2017, after economists expressed their concerns that the ballooning US deficit will worsen the trade imbalance, causing twin deficits. Credit Suisse suggests that the US Dollar is likely to fall by as much as 10% in 2018, due to these twin deficits and strong global growth. There are also concerns that president Trump’s plan to stimulate the US economy further risks setting off a sharp increase in inflation.

New Federal Reserve (Fed) chairman Jerome Powell has appointed a pair of monetary policy experts to act as his senior advisors. Jon Faust is a university economics professor and Antulio Bomform is an economist in the Fed’s monetary affairs division. Both have men have previously served as advisors to the Fed.

US Commerce secretary Wilbur Ross has said the US may impose quotas on imports of aluminium and steel, including a tariff of at least 24% on steel imports from all countries. China, which accounts for only about 1% of US steel imports, said such tariffs are groundless, noting the US already has excessive protections on domestic iron and steel products. China has warned it may challenge US tariffs at the World Trade Organization in a process that could takes years to settle. Ross also suggested that Trump might prefer to take a more “surgical” approach by imposing tariffs of 53% on imports from 12 countries including China, Russia and South Korea, while allowing exemptions for allies including Japan, Germany and Canada.

Tomorrow the Federal Open Market Committee (FOMC) Minutes will provide insight regarding the future US interest rate policy. As inflation accelerates, US interest rates are expected to rise as many as four times this year. Also, the IHS Markit Services and Manufacturing Purchasing Managers Indices (PMIs) for February are due for release. Manufacturing is expected to have slipped lower to 55.3 from January’s expansion to 55.5. The services PMI is likely to show continued expansion from 53.3 in January to 54.0, or slightly higher.

Euro – European Markets

The Euro has slipped against the Pound, with the exchange rate set at £0.88.

Germany’s ZEW Current Situation survey shows that investors are less optimist this month than they had been in January, with the figure dropping to 92.3 from 95.2. The ZEW Economic Sentiment survey for February also slipped from 20.4 in January to 17.8 for February. This decline was attributed to the struggle to form a German coalition government and the recent gyrations in global stock markets.

German producer prices rose by more than expected in January, according to today’s release by the Federal Statistical Office. Germany’s Producer Price Induces (PPI) showed an annual increase in prices to 2.1%, which was better than the 1.9% forecast, and slightly weaker than the previous increase of 2.3%. January’s month-on-month PPI spiked to 0.5%, overshooting expectation it would rise to 0.3%.

The Eurozone’s 19 finance ministers decided yesterday to appointment Spain’s Luis de Guindos as the next vice president of the European Central Bank (ECB) when Vitor Constancio’s mandate expires in May. Greece’s bailout programme was also reviewed, and due to two prominent reforms that have not been completed, Greece did not receive loans of up to €5.7billion. Rating agency Fitch has upgraded Greece’s credit rating from B- to B on the belief that general government debt sustainability will improve due to GDP growth and additional fiscal measures that will take effect through 2020.

Other Currencies – Highlights

Sterling is stronger against the Australian Dollar, with the exchange rate at 1.77 AUD. Reserve Bank of Australia assistant governor Michelle Bullock said yesterday that there are few signs that financial stress is increasing for Australian households despite weak wage growth and high levels of indebtedness.

The Pound is climbing against the New Zealand Dollar, exchanging at 1.90 NZD. New Zealand’s Producer Price Output rose 1% for the fourth quarter of 2017, the same increase seen in the previous reading. In the year to December 2017, producer output prices increased by 4.7% and producer input prices rose by 4.4%.

Sterling is trading stronger against the Swiss Franc, exchanging at 1.30CHF. Switzerland’s Trade surplus declined to its lowest level in 6 years, from 3.4billion CHF in December to 1.3billion CHF in January. Exports declined by 5.1%, compared to the previous January, while imports rose 3.8% from December.