Last week the market was really focused on two main speaking events, Powell’s testimony in Washington and Theresa May’s speech on Brexit. However, what the market was not expecting was a trade war emerging between the US and the rest of the world, caused by Donald Trump’s new tariffs announcement.

As we step into a new week, a sense of unnerve is lingering in the international trading air. Trump’s hawkish-like threats of introduction of punitive US tariffs on foreign steel (25%) and aluminium (10%) has been answered to by Europe with warnings of retaliatory strikes against American icons like Harley-Davidson, Levi’s jeans and Kentucky bourbon.

Pound Sterling – UK Markets

The Pound remains steady against the Euro, exchanging at €1.12. Sterling has seen a slight increase against the US Dollar, with the exchange rate at $1.38.

Britain has seen minor pick-up in its struggling construction industry in February, believed to be mostly led by the commercial sector. However, the uncertainty brought by Brexit continued to put pressure on order books. The HIS Markit/CIPS UK Construction PMI rose to 51.4 from 50.2 in January. The civil engineering sector however suffered its worst performance in five months and remains in a weak position. PMI covering the much larger services sector is due to be released on the 5th of March.

Office for National Statistics report released last week has proved some observers who had cheered a last minute lift in UK economic momentum wrong, showing that the UK economic growth was not 0.5% like first suggested and was in fact 0.4% during the final quarter of 2017. This and other newly released data is likely to affect the Pound, because it could impact on the Bank of England and its verdict on whether the UK will be able to sustain another rise in interest rates.

US Dollar – US Markets

The Euro remains steady against the US Dollar, exchanging at $1.23. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, saw a 0.08% drop and sits at 89.93.

The main focus in the US market is currently set on the development of President Trump’s announcement about possible imposition of tariffs on the steel and aluminium imports. Trump has threatened to increase taxes on European cars if the EU retaliates against tariffs on steel and aluminium. China is following EU’s response and vows retaliation if US tariffs bite.

Due to last week’s semi-annual testimony by new FOMC Chair Powell, we saw the all-important jobs data bumped to this week. Following on from Powell’s stance, the market will be keen to see if further salary inflation is reported and whether the job creation remains healthy.

Euro – European Markets

The Euro remains steady against the Pound, with the exchange rate set at £0.89.

Italy is facing a prolonged period of uncertainty and political volatility after voters delivered a hung Parliament in Sunday’s election, snubbing traditional parties and pushing for anti-establishment and far-right groups in never seen before numbers. This unexpected turn of events is likely to make the heavily indebted Italy the focus of market discussions in Europe. The Eurosceptic 5-Star Movement saw its support soar to become the largest single party, based on early vote-counting projections. All this has overshadowed the differing news that Merkel is set for a fourth term after the SPD voted in favour of another grand coalition.

The big focus for the EU traders will be on the coming Thursday, when the European Central Bank meeting will be held. It has been rumoured that there may be a change in the rhetoric with regards of QE. In addition, the market will be keen to see the view of the ECB with regards to Inflation, which at the moment is seen to be running way below the target.

Other Currencies – Highlights

Sterling has strengthened to the Australian Dollar, with the exchange rate at 1.78 AUD. The Pound followed similar increase when it came to its stand against the Japanese Yen, which now stands at 146.07¥.

The Australian government has admitted that it remains in a limbo of uncertainty, after the US President Donald Trump’s ‘new tariffs’ threats. Australia is still not sure whether they will be exempt from the new tariffs if the plans do come into reality. Concerns of a trade war and a global recession are dominating talks by the country’s ministers. Australia’s BluScope Steel, which has operations on the west coast of the US, employs 3,000 people in California and Washington states, and their activities would be majorly affected.

Newly gathered statistics show that South Africa Standard Bank PMI has had a positive growth impact, as it went up to 51.4 in February of 2018 from 49 in January. The increase points to the first expansion in private sector activity and the sharpest since July, as output and new orders return to steady growth after climbing past the PMI 50 mark.