Sterling lost ground across the board yesterday as the development on UK-EU relationship looks fragile. The newly published EU's draft legal agreement proposes a "common regulatory area" after Brexit on the island of Ireland. The European Union has demanded Northern Ireland remain within the European Union's customs union after Brexit, should no credible solution to the border issue be found. PM May said "no UK prime minister could ever agree to this.” This move raises the prospect of the two sides failing to establish a transitional Brexit agreement in March. This only puts more emphasis on PM May’s speech on Friday.

To add to PM May’s already weakened support regarding Brexit negotiation, European Union President Donald Tusk warned May that “Friction is an inevitable side-effect of Brexit” during his speech with an audience of business leaders in Brussels on Thursday.

Pound Sterling – UK Markets

The Pound is steady against the Euro, exchanging at €1.12. However, Sterling has fallen slightly weaker against the US Dollar, with exchange rate at $1.37.

City of London’s most charismatic foreign exchange analyst, David Bloom, described the British Pound versus Euro exchange rate as “Dull as Dishwasher” and blamed today’s rate on a fresh bout of selling linked to Brexit negation nerves. Such bouts in FX rates are to be expected during the time of more serious negotiation periods, however the rate is predicted to remain steady until a final decision is made.

House prices in the UK fell for the first time in six months in February. Nationwide index shows that a 0.3pc month on month fall took the average UK house prices to £210,402, down from £211,756 in January, suggesting some “tough months ahead.” Rising interest rates are to blame for decreased purchasing power, as well as current ongoing Brexit talks, that are believed to be putting a halt on buyers’ decision making.

US Dollar – US Markets

The Euro has fallen slightly against the US Dollar, exchanging at $1.22. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, is up, at 90.78.

Higher US interest rate expectations continue to weigh on the precious metal. Gold continues to fall, at $1,300/oz, as the US dollar continues gain following belligerent commentary from the new Federal chair Jerome Powell on Tuesday. A look at the implied US rates for the December 18 FOMC meeting show a 26.6% probability of a fourth-rate hike, up from 19.6% one month ago. Although a fourth hike still remains unlikely, traders are watching bond yields closely for any further signs that monetary policy will be tightened further.

Euro – European Markets

The Euro Pound exchange rate recovers ground despite lingering Brexit jitters, with the exchange rate set at £0.89.

Inflation in the Eurozone fell to its lowest level in more than a year in February as expected. However, core inflation (excluding volatile food, energy, alcohol and tobacco price) remained steady at 1 percent. The ECB may comment on this at next week’s ECB meeting,

European shares are seen to have dropped the most since a global pandemonium three weeks ago, following dramatic declines in the U.S and Asian markets. Treasury yields fell to steady two week low as traders were expecting a second appearance from Federal chair Jerome Powell, whose comments irked markets earlier this week.

Other Currencies – Highlights

Sterling is steadily increasing against the Australian Dollar, with the current exchange rate at 1.78 AUD. The Australian Dollar took a hit, yet gave back some its losses, after receiving a snapshot of China’s manufacturing sector. In February the official PMI reading was 50.3 vs 51.1 expected and 51.3 in January. This is considered the slowest pace of expansion since July 2016. Non-manufacturing PMI came out at 54.4 from 55.3 earlier. Again, failing to meet the estimated 55.0 mark. It’s worth to note, that a reading above 50 indicates growth while below show contraction.

The Pound has seen a slight drop against the New Zealand Dollar, exchanging at 1.90 NZD.

Sterling has seen a slight increase against the Japanese Yen, exchanging at 146.7¥.