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Brexit Plan: ambitious and confident

Brexit Plan: ambitious and confident

GBP
On Friday, the UK PMI Construction reading strengthened slightly to 51.4 for February, up from January’s four-month low of 50.2. A firm reading for commercial activity helped to offset weakness in the residential sector while upward pressure on costs eased slightly.

Prime Minister May’s speech fell flat in Brussels and it is being reported that EU proposals, due tomorrow, will likely be as vague as possible in order to put the pressure back on the UK PM to explain what her country wants. Whilst it may have helped paper the cracks in the Conservative party, the Northern Ireland border issue seems no closer to resolution.

It is quite clear that the GBPUSD pair is on the back foot ahead of the UK services PMI release this morning. The data due at 9:30 is expected to show the pace of expansion in the service sector improved slightly in February. An above-forecast (53.5) number could strengthen the British Pound, although gains could be temporary if equities remain risk-averse. On the other hand, a weaker-than-expected number would allow for a deeper sell-off in the Pound.

USD

University of Michigan February consumer confidence reading declined slightly to 99.7 from 99.9, although the data had little impact. The Dollar remained under pressure with a further negative reaction to President Trump’s announcement of tariffs on steel and aluminium imports. Confidence was undermined by concerns over damage to the economic outlook with the threat of retaliation and a move to reduce US Treasury holdings by countries such as China and Japan.

Today’s ISM non-manufacturing index is forecast for a reading of 58.0, a slight drop from the January reading. Realistically, the market focus will be on Friday’s NonFarm Payrolls.

EUR

There was evidence that Euro-funded carry trades were being scaled back which underpinned the currency. The Euro moved back above 1.2300 against the Dollar and held the position. CFTC data revealed Euro longs increased for the first time since early February which indicates potential for a “squeeze” if sentiment changes.

German Social Democratic Party (SPD) members voted in favour of a grand coalition with Chancellor Merkel’s Christian Democrats (CDU) which eased domestic political concerns and initially boosted the Euro. In contrast, populist parties polled strongly in the Italian parliamentary elections with Five Star the largest single party. Within the centre-right alliance, which is set to be the largest grouping, the Northern League also gained more votes than former Prime Minister Berlusconi’s Forza Italia party. Uncertainty undermined the Euro with a retreat to just below 1.2300 from opening Asian levels above 1.2350.

Data to watch:
9:00 EUR Markit Services PMI (Feb)
9:00 EUR PMI Composite (Feb)
9:30 GBP Markit Services PMI (Feb)
14:45 USD Markit Services PMI (Feb)
14:45 USD Markit PMI Composite (Feb)
15:00 USD ISM Non-Manufacturing PMI (Feb)

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