The Pound is stable, although weaker, after losing value on Friday following concerns that a Brexit transition is not “a given.” EU chief negotiator Michel Barnier made it clear that the EU would not negotiate on some of the issues Britain has raised on the proposed transition agreement. This morning, Visa’s survey shows that UK household spending fell in January for the first time in five years. Visa cards account for a third of payments in Britain and the decline in spending was the eighth decline in the past nine months. The Bank of England’s interest rate intentions may be clarified by Monetary Policy Committee members Gertjan Vlieghe and Ian McCafferty who will speak today.

The Euro is edging a little higher against the weakening US Dollar, today, as markets return to calm. Last week, the US Dollar had it strongest weekly performance since 2016, due to nervous investors seeking less risky currencies which also included the Japanese Yen and Swiss Franc. Volatility may return to the markets if inflation is seen to be rising, according to the US Consumer Price Index which is due out on Wednesday.

Pound Sterling – UK Markets

The Pound is weaker against the US Dollar, with the exchange rate lower, at $1.38. Sterling also retreated against the Euro, exchanging lower today at €1.12.

Sterling slipped on Friday after EU chief negotiator Michel Barnier made it clear that the EU would not negotiate on some of the issues Britain has raised on the proposed transition agreement. The Pound was not lifted by today’s IHS Markit Visa release showing that shoppers spent less last month than they had the previous January. The 1.2% month-on-month fall in spending was the first decline since 2013. Brexit concerns were cited by IHS Markit, who also recorded that shop sales fell by 4%.

Tomorrow, the inflation rate will be featured in the Consumer Price Index (CPI), which measures the purchasing price of the Pound against inflation. The National Statistics latest reading of CPI was at 3.0%, and tomorrow’s figure is expected to fall to 2.9%. Bank of England’s recent inflation outlook indicated inflation will be rising in the coming months, which may be seen in an unexpectedly higher CPI, a key indicator to measure inflation.

Other inflation gauges will be seen in the releases of the Producer Price Indices (PPIs), which measures the price changes in the goods produced by British manufacturers. Many of these are expected to soften, which would keep prices lower for domestic goods. Core Producer Prices and the Producer Price Index Output figures are expected to increase, marking the rise of inflation for consumers and manufacturers.

The UK economy grew by 0.5% in the three months to January, according to the National Institute of Economic and Social Research (NIESR). The think tank said: “We are forecasting GDP growth of close to 2% this year assuming a soft Brexit scenario.” Amit Kara, head of macroeconomic forecasting at NIESR also warned that, “If instead, Brexit talks fail, the UK economy will in our view suffer a marked slowdown with damaging longer-term consequences.” NIESR also said their more optimistic forecast anticipates a 25-basis points interest rate increase beginning in May, rising every six months until the bank rate hits 2% in mid-2021.

US Dollar – US Markets

The US Dollar is losing a little strength against the Euro, exchanging at €0.81. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, is down, at 90.24.

Today, no major US data will be released in observance of Abraham Lincoln’s birthday. Later today, the Financial Management Service releases their Monthly Budget Statement. The treasury budget summarises the financial activities of the Federal Reserve banks and other federal entities. The monthly budget is expected to show a positive figure of $108.8billion, following a deficit of $23billion in November.

President Donald Trump will detail his proposed infrastructure spending programme today, amid Congressional concerns about how the upgrades will be financed. Trump wants to spend $200billion over the next ten years by creating competitive grants to encourage states and cities to raise most of the funding which the White House expects will fuel $1.5trillion in new investment. The $200billion in federal funding is to come from spending cuts that will be outlined in the annual budget Trump will send to Congress this week. Given that the budget will boost deficits past $1trillion by next year, Congress is unlikely to support the infrastructure proposal since it pushes spending higher without concrete details regarding the funding.

The week is quiet, in terms of US data releases, although further stock market volatility may continue on data indicating rising inflation, since this could trigger faster interest rate increases. On Wednesday, Consumer Price Induces may show rising inflation which could lead US investors to participate in yet another market sell-off that would spread into global markets. Later in the week, manufacturing, unemployment and the construction sector will also be evaluated.

Euro – European Markets

The Euro is rising slightly against the US Dollar, with the exchange rate set at $1.22.

German chancellor Angela Merkel has called for younger members of her Christian Democrat (CDU) party to fill six new ministerial posts in the coalition government. Merkel defended giving the key finance minister position to the Social Democrat party (SPD), saying: “We have also approved the policies and the finance minister cannot simply do as he likes.” SPD leader Martin Schultz decided against serving as foreign minister, on Friday, saying that he did not want debates within the SPD about his role to jeopardise the new coalition.

The EU draft withdrawal agreement stipulates that Northern Ireland will remain in the customs union and single market after Brexit, to avoid having a hard border. UK negotiators were told there could be a “sunset clause” included in the legal text which would make this stipulation null and void in future if an alternative solution were found. After last Wednesday’s cabinet meeting to discuss the issue of the Irish border failed to come to any meaningful conclusion, the UK may find this border agreement is one of the issues that the EU has warned it will not negotiate.

On Wednesday, 14 February, this week’s most critical Eurozone data will be released. Germany’s Harmonised Index of Consumer Prices (HICP) for January is expected to remain flat at 1.4%, as price stability continues. Eurozone’s annual Gross Domestic Product (GDP) is expected to show increased growth up to 2.7% from the previous year-on-year rate of 2.6%.

Other Currencies – Highlights

Sterling has slipped against the Australian Dollar, with the exchange rate at 1.76 AUD. The Australian royal commission into banking and financial services is holding its initial public hearing, today. Evidence will be presented in Melbourne to show how customers are not always treated fairly during the $75million inquiry into home loans and consumer credit products.

The Pound is weaker against the New Zealand Dollar, today, exchanging lower, down to 1.91 NZD. New Zealand’s annual Electronic Card Retail Sales rose to 3.4%, from a previous 3.3%. For the month of January, the previous figure of 0.5% was revised higher as card sales soured to 1.4%.

The Pound has lost a little ground to the Canadian Dollar, exchanging at 1.73 CAD. Canada’s unemployment rate figures for January showed the deepest one-month loss in 9 years. According to Statistics Canada, the unemployment rate rose by 0.1% to 5.9%, with the unexpected loss of 88,000 jobs, after a drop of only 9,000 had been anticipated.