Delaying the Divorce

Sterling nears its highest levels in a month as a no-deal Brexit becomes less likely, while global risk appetite improves as trade tensions thaw

Previous Day's Market Highlights

The pound was the best performing major currency on Monday, adding around 0.6% against the dollar, as markets became increasingly optimistic that a ‘no-deal’ Brexit would be avoided. Sterling had gradually climbed higher throughout London trading, however the pound accelerated its gains after UK markets closed as firstly, opposition leader Jeremy Corbyn confirmed that he would be backing a 2nd Brexit referendum. This was followed by reports later in the evening that the Prime Minister was also examining an extension to Article 50 to avoid a no-deal exit. Such a decision is set to be discussed at Cabinet today, with a statement to the Commons due this afternoon.

Elsewhere, risk sensitive currencies continued their overnight rally as President Trump confirmed that a planned increase in tariffs on Chinese goods would be postponed. In reaction to the thawing of trade tensions, the Aussie and Kiwi dollars gained more than 0.6%, with the latter trading close to its highest levels of the month against the greenback. In addition, the safe-haven yen lost ground, losing around 0.3%, to trade at its lowest levels against the dollar this year. 

Meanwhile, the euro also gained against the dollar, adding 0.3%, mainly due to a broadly weaker dollar as global risk appetite improved. In contrast, the Canadian dollar lost ground, losing 0.5%, with the loonie driven lower by the steep fall in oil prices. 

Away from FX, equity markets benefitted from improving risk sentiment with China’s CSI 300 index the main beneficiary, gaining just shy of 6%. Markets in Europe and the US were more muted with the pan-European Stoxx 600 adding 0.3% and the benchmark S&P500 closing well off session highs, adding 0.15%. Finally, oil prices fell, with both Brent and WTI declining by more than 2% after President Trump tweeted that oil prices were “too high” and urged OPEC to “please relax and take it easy”.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1585 1.1587 1.1312 2.37%
GBP/USD 1.3150 1.3162 1.2773 2.96%
EUR/USD 1.1353 1.1514 1.1233 2.44%
GBP/AUD 1.8385 1.8448 1.7844 3.27%
GBP/NZD 1.9115 1.9285 1.8701 3.03%
GBP/CAD 1.7375 1.7379 1.6960 2.41%

Today's Market Highlights

All eyes will be on Fed Chair Powell’s testimony to Congress today, scheduled to begin at 3pm, after the Fed’s dovish pivot at their meeting in January. It is likely that the Fed Chair will face several questions on the likely path of monetary policy over the coming months, especially with the Fed in ‘wait-and-see’ mode, as well being probed on the shape of the Fed’s balance sheet as it reverses the effects of its crisis-era QE programme. With the US economy seemingly slowing, and the Fed being dependent on incoming economic data to shape their future monetary policy, markets will pay close attention to Powell’s comments, with the dollar likely to appreciate if markets believe the pause to the tightening cycle will be a short one.
 
Meanwhile, in the UK, there is once again no tier 1 economic data for markets to chew over. Instead, focus will fall with the Bank of England’s quarterly testimony to the Treasury Select Committee, where MPs will probe Governor Carney and his colleagues on areas ranging from the BoE’s economic forecasts, the prospects of monetary policy tightening and the UK economy’s prospects post-Brexit. Furthermore, the Prime Minister is scheduled to deliver an address to Parliament, providing MPs with an update on the Brexit negotiations ahead of tomorrow’s vote on the way forward.
 
The main piece of economic data will come from the US, with both building permits and housing starts figures set to remain at similar levels to last month. Other data highlights include US consumer confidence figures and, overnight, trade balance data from New Zealand. There is no notable data due from the eurozone. Finally, other than the aforementioned, central bank speakers are light on the ground, with only the ECB’s incoming Chief Economist Lane due to speak.

Today's Economic Calendar

Time Currency Release Consensus Previous
10:00 GBP Inflation Report Hearings
13:30 USD Building Permits (m/m) 1.29mln 1.32mln
13:30 USD Housing Starts (m/m) 1.25mln 1.25mln
15:00 USD Fed Chair Powell Testimony
21:45 NZD Trade Balance (y/y) -5.5bln -5.9bln