No Sign of a Brexit Breakthrough

Sterling slides as the Brexit impasse continues, while the dollar modestly weakens after a mixed labour market report.

Previous Day's Market Highlights

Sterling was the worst performing major on Friday, losing 0.5% against the dollar and almost 1% against the euro, as Brexit concerns continued to weigh on the pound. Markets have become increasingly concerned over the lack of a breakthrough in UK-EU talks, which has decreased the likelihood of the 2nd meaningful vote on the Withdrawal Agreement being successful this week and intensified political headwinds for the pound. Sterling has continued its slide in Asia trading this morning, falling below the key $1.30 level, as investors mull reports that the margin of defeat in Tuesday’s vote could be well into 3 figures - making it more difficult for the Prime Minister to conduct further negotiations with the EU.

Meanwhile, the dollar traded modestly weaker on Friday, after a mixed labour market report left investors struggling for direction. The headline nonfarm payrolls figure vastly missed expectations, falling to its lowest level since September 2017, with just 20,000 jobs added to the US economy in February. However, despite the headline miss, the details of the report were promising for the dollar with both the unemployment rate and average hourly earnings beating expectations, the latter rising to 3.4% - a post-crisis high. Further reassuring signs were upward revisions to December’s and January’s job gains as well as a fall in the underemployment rate. Over the course of the day, the dollar lost 0.25% against a basket of peers, with the greenback finding some support as market participants digested the full details of the report. On the whole, the data is unlikely to have a significant effect on the Federal Reserve’s policy outlook and is unlikely to materially change the market’s view of the US economy in the longer-term. 
In contrast to the greenback, the Canadian dollar gained, adding around 0.4%, after labour market figures beat expectations and showed almost 56,000 jobs being added to the economy last month. An increase in wages will also be a pleasing sign for the Bank of Canada, who sounded a cautious tone at their meeting on Wednesday. The euro also gained, adding around 0.3%, as the single currency reversed some of its losses after a more-dovish than expected ECB spooked markets on Thursday. 

Away from FX, equity markets on both sides of the Atlantic lost ground on Friday as poor Chinese data and concerns over a slowdown in economic activity continued to weigh on major indices. The pan-European Stoxx 600 lost 0.9%, while the US benchmark S&P 500 lost 0.2%, posting a 5-day losing streak. Finally, oil prices also fell, trading down by around 1%, with Brent briefly touching its lowest levels in 3 weeks.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1568 1.1724 1.1312 3.51%
GBP/USD 1.3010 1.3350 1.2773 4.32%
EUR/USD 1.1247 1.1419 1.1176 2.13%
GBP/AUD 1.8460 1.8775 1.7990 4.18%
GBP/NZD 1.9095 1.9542 1.8660 4.51%
GBP/CAD 1.7465 1.7723 1.6973 4.23%

Today's Market Highlights

Today’s main focus comes once again from the US, with the release of retail sales figures for January. Expectations are for the data to bounce back from a disappointing December, with sales set to increase at 0.1% on a month-on-month basis, recovering from its lowest level since 2009. The less-volatile control group measure is also expected to recover, showing an increase of 0.6% on a month-on-month basis. Market participants are likely to pay close attention to the data to gauge the health of the US consumer, as well as examining the impact that consumer spending will have on US GDP for the first quarter. Note that the US data will be released at 12:30 GMT, an hour earlier than usual due to the US moving to daylight saving time. 
Elsewhere, data is limited once again, with no notable releases from either the UK or eurozone. Only the BoE’s Haskel is scheduled to speak, however his remarks are likely to be focused on the impact of Brexit on the monetary policy outlook for the UK. Focus for the pound will once again be any headlines related to the UK’s divorce from the EU, ahead of Tuesday’s meaningful vote on the Brexit deal.

Looking ahead to the remainder of the week, tier 1 economic data is lacking with only UK GDP and US CPI inflation figures of note. The Bank of Japan also meet, however monetary policy is expected to be kept on hold with continued muted inflation giving the BoJ little reason to change policy. Finally, this week will be pivotal for Brexit, with Parliament set to vote up to 3 times on the way forward. Firstly, Parliament will hold the 2nd meaningful vote on the Withdrawal Agreement on Tuesday, with latest estimates suggesting that the deal will fail once again. Assuming this is the case, the Commons will then hold 2 further votes on whether to proceed with exiting the EU without a deal (Weds), or whether to extend Article 50 (Thurs). Approval of a deal, or the more likely extension of the negotiating period, is likely to see sterling move to the upside - with the length of any extension being key for the magnitude of the pound’s rally.

Today's Economic Calendar

Time Currency Release Consensus Previous
12:30 USD Retail Sales (m/m) 0.1% -1.2%
12:30 USD Retail Sales (control group - m/m) 0.6% -1.7%
13:00 GBP BoE's Haskel speech