Brexit Uncertainty Weighs Down the Pound
Sterling has slipped against the US Dollar which is picking up strength ahead of data releases which will put US inflation in focus. The Pound may be driven lower this week by political news, as Conservatives pressure prime minister Theresa May to clarify her vision for Brexit. Also, the House of Lords will debate the EU withdrawal bill. Tomorrow, Bank of England (BoE) governor Mark Carney will answer questions from a House of Lords committee about his Brexit economic forecasts and the likelihood that financial services will be part of a Brexit trade deal.
The Euro has also lost some ground to the US Dollar, after fears of a trade war led to the US currency’s poor performance last week. There is scant economic data coming out of the EU today, however tomorrow, the Eurozone GDP figures will show the region’s economic growth. Germany’s inflation will also be scrutinised when the harmonised Index of Consumer Prices is released.
Pound Sterling – UK Markets
The Pound slid against the US Dollar, with the exchange rate set lower at $1.41. Sterling also fell against the Euro, with the exchange rate down to €1.13. With no economic data releases out today, Brexit and politics are keeping the Pound subdued.
The House of Lords has called the EU withdrawal bill “constitutionally unacceptable,” saying that it will need to be substantially rewritten. The bill is intended to transpose EU legislation into domestic law by March 2019, when Brexit begins. Although the bill was approved by the House of Commons, the Lords constitutional committee said the current bill risks “undermining legal certainty.” This Tuesday and Wednesday, the legislation will be fiercely debated when it reaches the House of Lords.
Tomorrow, BoE governor Mark Carney will be asked about his pessimistic Brexit outlook in 2016 by the House of Lords Economic Affairs Committee. He will be questioned about his decision to ward off a Brexit recession by slashing interest rates for the first time in seven years. Carney will also be asked his opinion regarding a likelihood of a Brexit trade deal that will include financial services.
Prime minister Theresa May is under increasing pressure to clarify the Brexit deal that the government wants to strike with EU. Both sides of her conservative party are expressing frustration that the PM has yet to lay out her vision for Britain regarding Brexit. Reports that chief negotiator Ollie Robbins had approved EU officials being offered compromises—including continued membership in the customs union—have raised concerns that the government intends to remain in the EU “in all but name.”
US Dollar – US Markets
The US Dollar has picked up some strength against the Euro, with the exchange rate set €0.80. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, is rising, with a reading of 89.12.
The major data release from the US today will focus on inflation as the Personal Consumption Expenditure (PCE) figures for January are due out. Month-on-month inflation is expected to have risen from 0.1% in December up to 0.2%. The current annualised reading of 1.5% is not expected to increase, but if it does, it will likely strengthen the Dollar, since it supports the likelihood of an additional interest rate hike this year.
This week, the Federal Reserve (Fed) is not expected to make any changes to monetary policy as Fed chair Janet Yellen presides over her last policy meeting. Yellen will hand the levers of monetary policy over to Jerome Powell at a time when the central bank is being pressed to provide more flexibility and transparency. As US economic growth outstrips a monetary policy calculated toward recovery, the CEO of Barclays criticised the cautious US monetary policy as the “remnants of a depression era.”
Euro – European Markets
The Euro has slipped against the US Dollar, with the exchange rate set at $1.24.
Dutch central bank president Klaas Knot has said that the European Central Bank (ECB) should make it clear how it plans to end its asset purchases after the current bond buying programme concludes in September. Speaking on Sunday, Knot said the reason ECB president Mario Draghi won’t commit to an end date for the asset purchases now is in effort to keep the Euro’s value in check. He also said that ending the asset purchases would allow interest rates to be increased in 2019.
Deutsche Bundesbank released Germany’s Import Price Index for December which came in higher than the anticipated rate of 0.2%. The figure of 0.3% indicates that month-on-month prices are rising due to higher production costs and rising inflation. This was also seen in the year-on-year Import Price Index reading which rose to 1.1%, beating expectation of a lower reading of 1.0%.
Other Currencies – Highlights
Sterling fell slightly against the Australian Dollar, exchanging at 1.74 AUD. A recent Deloitte Access Economics business report has forecast the Reserve Bank of Australia will keep interest rates unchanged this year, which will help property owners. The report said global growth and weak inflation will contribute to a job growth; it also warned against the government overpromising on tax cuts.
The Pound is exchanging higher to the New Zealand Dollar, trading at 1.92 NZD. Today is a busy day for New Zealand economists as key export and imports reports will be released. Analysts expect that December’s Trade Balance will have fallen significantly from -1,193million NZD down to -125million NZD.
The Pound is trading lower against the Japanese Yen with the exchange rate set at 153.43¥. Bank of Japan governor Haruhiko Kuroda said that progress is being made regarding the stubbornly low inflation rate, saying, “There are many factors that made the 2% target difficult and time-consuming by we are finally getting close.”