Kicking the Brexit can down the road

Sterling gains for a sixth straight week on expectations of a delay to Brexit as the dollar slides despite a temporary deal to reopen the government.

Previous Day's Market Highlights

The dollar fell to its lowest level in over a week against a basket of peers on Friday, as a further round of dollar selling continued despite a resolution being reached to bring the longest-ever government shutdown to an end. A deal between the President and Congress was reached to reopen the government until 15th February to allow time for a debate over border security to take place. Speculation persists that if, at the end of the 21 day period, funds have not been made available for a border wall, President Trump could declare a state of emergency to requisition funds.
 
Elsewhere, sterling continued to gain with the pound adding around 0.3% against the euro and 0.9% against the dollar to briefly trade above $1.32. The pound’s gains were largely due to continuing market hopes that a no-deal Brexit would be avoided with sterling having now recorded 6 straight weeks of gains against the dollar, and 4 weeks of gains against the euro. On the other hand, the single currency was not aided by German business climate figures falling to a 3 year low, further fuelling fears over an economic slowdown. In contrast, commodity currencies performed well on Friday, with the Canadian, Australian and New Zealand dollars all adding around 0.5% as oil prices rallied and risk-on sentiment returned to the markets.
 
In other asset classes, equity markets in Europe and the US gained, with the pan-European STOXX 600 adding 0.6%. Across the pond, US equities rallied as the government reopened, with the Dow adding 175 points to close out its fifth straight week of gains. Finally, as mentioned above, oil prices rallied by around 0.9% as fears grew that the US would impose sanctions on Venezuela, which has the largest proven oil reserves in the world.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1540 1.1604 1.1035 4.90%
GBP/USD 1.3165 1.3281 1.2440 5.89%
EUR/USD 1.1405 1.1570 1.1280 2.51%
GBP/AUD 1.8318 1.8522 1.7613 4.91%
GBP/NZD 1.9205 1.9426 1.8603 4.24%
GBP/CAD 1.7405 1.7498 1.6756 4.24%

Today's Market Highlights

The economic calendar is quiet to start the week, with only this evening’s trade balance figures from New Zealand of note. While the data is expected to show a trade surplus for the first time since June last year, investors’ focus is likely to rest elsewhere. Today’s speeches from ECB President Draghi and BoE Governor Carney are more likely to cause market volatility, though the ECB’s message is likely to remain broadly similar to the statement released at their meeting last Thursday. On the other hand, the Carney’s speech will be examined for any hints of the likely monetary policy action post-Brexit, especially with signs of a tightening labour market after last week’s figures showed wage growth at a post-crisis high.
 
Looking ahead to the rest of the week, key for the pound will be tomorrow’s parliamentary vote on the government’s Brexit plan ‘B’ proposals. Amendments legislating for a delay to article 50 or for a softer Brexit are likely to attract the most attention from the market, with expectations for a delay to the Brexit process increasing by the day. Also on investors’ radar is Wednesday’s Federal Reserve meeting where, despite interest rates likely to remain on hold, close attention will be paid to the Fed’s assessment of the US economy as well as any comments suggesting an increasing likelihood of a pause to the cycle of tightening monetary policy.
 
In terms of data, GDP figures from the eurozone and Canada will attract significant attention, especially the former after a recent softening of economic data from the single currency bloc. Finally, Friday’s release of the monthly US labour market report will, as always, command significant market attention. Focus is likely to be on wage growth once again while the report as a whole will be closely watched for any shutdown-related impacts on the jobs landscape in the US.

Today's Economic Calendar

Time Currency Release Consensus Previous
2:00pm EUR ECB President Draghi Speaks
2:30pm GBP BoE Gov. Carney Speaks
9:45pm NZD Trade Balance 225m -861m