Irish border, a tall order?
Brexit headlines continue to strike the UK currency. The EU’s chief negotiator, Michel Barnier, stated how there are there still ‘’significant points of disagreement’’, placing the Pound under pressure as it raises questions over whether a divorce deal and an agreement on post-Brexit transition will happen in time. The EU summit next month is the proposed deadline for a transition deal.
The Pound was affected by the underlying uncertainty which had a negative impact, yet wider Dollar and Euro moves took over trading. The UK currency declined to lows near 1.3850 against the Dollar before rebounding up to 1.3900 while, against the Euro, the Pound strengthened to reach levels shy of 1.14.
Today, a draft of the Brexit withdrawal is expected to be published from the European Union and set to cause turbulence, ignoring Theresa May’s recent requests regarding the highly disputed Irish border, posing risks of a domestic crisis.
The US Dollar is outperforming on expectations that the new Federal Reserve chair, Jerome Powell, will keep the central bank on its path of continuing to raise interest rates as the economy has “strengthened”. Mr Powell gave live testimony yesterday, answering typical questions about the economy and monetary policy in general. Following his optimism, the Dollar rallied and was also boosted by market speculation that the Fed will be looking to raise rates at a faster pace in the medium term.
The market is pricing in three rate hikes this year, with the first coming next month. The Dollar Index is approaching a key resistance level just above 90.50 which has seen investors reverse their positions and sell the Greenback.
In terms of US data, the Conference Board Consumer confidence reading for February rose from 124.3 to 130.8, the highest since 2000 and, similarly, other measures of consumer sentiment are around their long-term highs. Today, we see advanced GDP figures for the October-December period, seconded by January’s Pending Home Sales.
The Euro continues to show signs of reversing the rally made at the beginning of the year as the latest inflation data points to a lack of price pressures. German CPI was weaker than expected at 1.2% in February, dropping from 1.4% last month which highlights the European Central Bank’s (ECB) uphill battle. It wasn’t all negative for the German economy as consumer prices increased 0.5% for February, in line with consensus expectations but the year-on-year rate being at 1.4% from 1.7% previously was below forecasts.
Bundesbank head Weidmann remarked the importance of gradually reducing monetary stimulus, dependent on inflation, and that the quantitative easing programme should end this year. He also stated that a rate hike was possible in 2019.
Eurozone inflation data today is expected whereby the harmonized inflation rate is due to drop to 1.2% y/y in February with core inflation holding firm at 1.0% y/y.
Data to Watch:
00:01 GBP BRC Shop Price Index (YoY) (Feb)
07:00 EUR Gfk Consumer Confidence Survey (Mar)
07:45 EUR Consumer Price Index (EU norm) (YoY) (Feb)
09:00 EUR Unemployment Change (Feb)
09:00 EUR Unemployment Rate s.a. (Feb)
10:00 EUR Consumer Price Index – Core (YoY) (Feb)
10:00 EUR Consumer Price Index (YoY) (Feb)
13:30 USD Gross Domestic Product Annualized (Q4)
13:30 USD Gross Domestic Product Price Index (Q4)
13:30 USD Personal Consumption Expenditures Prices (QoQ) (Q4)
13:30 USD Core Personal Consumption Expenditures (QoQ) (Q4)
14:45 USD Chicago Purchasing Managers’ Index (Feb)
15:00 USD Pending Home Sales (MoM) (Jan)
15:00 USD Pending Home Sales (YoY) (Jan)
15:00 USD Fed’s Powell Speech