Sterling steps up to receding no-deal risk

Sterling rallies to its highest levels since mid-November as support builds for avoiding a no-deal Brexit.

Previous Day's Market Highlights

Sterling was once again the major mover on Wednesday, gaining around 1% against both the dollar and euro, hitting its highest levels since November 18 as rumours of a delay to the Brexit process gained traction. The rally was kickstarted by reports that the Labour party would be backing an amendment forcing the government into an extension of the article 50 period if Parliament are unable to ratify a deal by the end of February while the pound extended its gains as officials failed to dispute the rumours. Further spurring the pound's rally were comments from EU officials as well as a break of key technical levels, including breaking above the 200-day moving average against the dollar for the first time since May last year. Sterling’s rally underscores the market viewpoint that a delay to Brexit is the likely outcome, with pricing starting to reflect this as the pound has recorded gains in 5 of the last 6 trading days.

The economic calendar was sparsely populated, with Canadian retail sales the main highlight. The figures missed forecasts to the downside, showing a decrease of 0.9% on a month-on-month basis. However, due to the volatile nature of the data, and with investors’ focus lying elsewhere, the loonie was unmoved. Other data was lower tier, however manufacturing figures from the Richmond Fed beat expectations to the upside. Central bank speakers were also limited, with only BoE Deputy Governor Broadbent scheduled, though his speech did not touch on monetary policy.
In other markets, European equities gave up earlier gains to close in the red with major bourses closing down by around 0.3% as prices were weighed down by continued doubts over global trade and geopolitical risk. Across the pond, US markets recorded modest gains, with the S&P 500 adding 0.22%. Finally, Brent crude prices fell 2.5%, reversing yesterday’s gains, due to continued fears over economic growth.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1467 1.1498 1.1018 4.17%
GBP/USD 1.3041 1.3094 1.2440 4.99%
EUR/USD 1.1372 1.1570 1.1280 2.51%
GBP/AUD 1.8375 1.8415 1.7613 4.36%
GBP/NZD 1.9254 1.9302 1.8603 3.62%
GBP/CAD 1.7422 1.7482 1.6756 4.15%

Today's Market Highlights

All eyes will be on the eurozone today, with the main highlight this afternoon’s announcement of the latest European Central Bank monetary policy decision. While the meeting is highly unlikely to herald any change to monetary policy however market participants will be paying close attention to comments surrounding the recent slowdown in economic activity, weaker confidence indicators and a lack of developments in the Brexit negotiations – all of which pose downside risks to the ECB’s outlook. Overall, the bias of risks for the meeting is tilted to the downside, with the possibility of dovish comments from President Draghi as well as a downbeat assessment of the eurozone economy likely to weigh on the single currency.
In addition, the latest set of PMI figures for the eurozone will also be closely watched by market participants amid a recent slowing of economic indicators and a fall in production across the bloc. Expectations are for expansion in both the manufacturing and services industries at a similar pace to last month, a figure in line with expectations may provide the single currency with some support before the ECB meeting. Other data includes this morning’s release of employment figures from Australia which showed the unemployment rate ticking down to 5.0% and employment change figures beat expectations. Despite the positive data, the Aussie dollar lost around 0.6% overnight on news that National Australia Bank (a domestic lender) has hiked mortgage rates due to an increase in funding costs. 

Finally, both sterling and the US dollar are likely to remain influenced by geopolitical factors – Brexit for sterling, trade and the ongoing government shutdown for the dollar – due to a lack of important economic data from either economy. US initial jobless claims are unlikely to stimulate significant market interest barring significant deviation from expectations.

Today's Economic Calendar

Time Currency Release Consensus Previous
9:00am EUR Manufacturing PMI 51.4 51.4
9:00am EUR Services PMI 51.5 51.2
12:45pm EUR ECB Rate Decision 0.0% 0.0%
1:30pm EUR ECB Press Conference
1:30pm USD Initial Jobless Claims 220k 213k