Six More Months

The pound holds steady as the EU grant a further Brexit extension while dovish Draghi returns and the Fed leave the door ajar for further hikes.

Previous Day's Market Highlights

Sterling recorded modest gains on Wednesday after the European Union agreed to a further extension of the Article 50 period, delaying Britain’s departure date until 31st October - coincidentally the same day as Halloween. This is however a ‘flexible’ extension whereby the UK can leave before the end date should the Withdrawal Agreement be ratified on both sides, with a progress review due to be held in June. The EU have reaffirmed that the Withdrawal Agreement is not up for renegotiation during this extension hence any further negotiations are likely to centre around the Political Declaration outlining plans for the future UK-EU trading relationship. The pound’s reaction to the delay was rather muted, with the news having been priced in to the market in advance. Over the course of the day sterling gained 0.35% against the dollar and 0.2% against the euro, treading water after the delay was announced. 
Elsewhere, the euro closed unchanged, paring losses of around 0.4%, after a relatively dovish tone from the ECB. Despite rates being kept on hold and no fresh policy measures being announced, President Draghi struck a cautious note, outlining how inflation is likely to decline in the coming months and how the balance of risks remains tilted to the downside. While the ECB stated it was too early to decide on the specifics of either tiering the deposit rate or the fresh round of TLTROs, it is clear that the Bank remain in wait-and-see mode and will take further action if necessary and the eurozone slowdown persists.
Across the pond, minutes from the Federal Reserve’s March policy meeting showed policymakers leaving the door ajar for further rate hikes by emphasising that “rate views could shift either way” despite the majority of officials stating that patience was needed. A majority also assessed that the risks to the economic outlook warranted leaving rates on hold for the remainder of the year. Along with the FOMC minutes, CPI inflation data showed price increases continuing to hover close to the Fed’s 2% target. Headline inflation increased at 1.9% on a year-on-year basis in March, with core inflation increasing at 2.0%. A continued patient stance from the Fed, combined with benign inflation, capped any rallies in the dollar which traded flat on the day. 

Away from FX, equity markets rallied, with gains in the US led by the prospect of lower rates for longer. Both the pan-European Stoxx 600 and the US benchmark S&P 500 added 0.2% over the course of the day. Meanwhile, oil prices also rallied amid concerns over supply, with both Brent and WTI adding more than 0.5%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1595 1.1787 1.1463 2.75%
GBP/USD 1.3080 1.3311 1.2976 2.52%
EUR/USD 1.1275 1.1448 1.1183 2.31%
GBP/AUD 1.8270 1.8785 1.8229 2.96%
GBP/NZD 1.9360 1.9512 1.8960 2.83%
GBP/CAD 1.7555 1.7795 1.7327 2.63%

Today's Market Highlights

Today’s economic calendar is lighter, giving markets a chance to pause for breath after yesterday’s packed schedule. The primary economic releases come from the US this afternoon, in the shape of producer price inflation alongside weekly jobless claims. The PPI figure, a useful leading indicator for the more popular CPI inflation measure, is expected to remain unchanged at 1.9% on a year-on-year basis, with the core measure expected to increase at 2.4% on the same basis. Such figures are unlikely to have a significant impact on either the dollar or the Fed’s policy stance. The jobless claims number may also attract some attention as markets attempt to gauge the tightness of the US labour market, claims are expected at 211,000.
Meanwhile, in Europe data is also limited, with the highlight being this morning’s German HICP inflation figure, which showed prices increasing in line with forecasts at 1.4%. No other eurozone or UK economic figures are due. In Westminster, the Prime Minister is due to give an update to Parliament on last night’s EU summit, while cross-party talks between the Government and the Labour party are set to continue in an attempt to find a consensus for a way forward. As always, the pound will remain susceptible to any Brexit-related news. 
Finally, central bank speakers may spark some market volatility, with 5 members of the Federal Reserve due to speak this afternoon. Perhaps of most importance will be Vice Chair Clarida’s speech on the economic outlook, though focus will also be on any monetary policy comments from Bullard, Quarles, Kashkari and Bowman throughout the day. The only other speaker will be the BoC’s Wilkins this evening.

Today's Economic Calendar

Time Currency Release Consensus Previous
1:20pm USD Initial Jobless Claims 211k 202k
1:30pm USD PPI (y/y) 1.9% 1.9%
1:30pm USD Core PPI (y/y) 2.4% 2.5%