It’s not us, it’s EU, but we’d like to stay friends
A letter will be hand-delivered today at 12:30pm BST by Sir Tim Barrow (the UK’s Permanent Representative to the EU in Brussels) to European Council President Donald Tusk. The UK’s letter is unlikely to contain much new information beyond what has already been published by the government, but it’s possible we will get a brief EC response ahead of a more full-fledged response later this week.
The negotiation progress will initially be quite slow as the EU27 leaders won’t meet to discuss their negotiating strategy until the end of April. Both sides are likely to lay out rather firm views in the early days of negotiations before gradually working towards a more constructive middle-ground from where both parties will be able to claim victory.
GBPUSD has come under renewed selling pressure, and wavers just below the 1.2400 level as the London traders have arrived at their desks and started to dump the Pound in response to the overnight reports.
Bank of England Monetary Policy Committee (MPC) member McCafferty has stated that the economy is strengthening slightly, but that there could be a negative consequence of rising inflation. He also remarked that interest rates would be increased and quantitative easing would be reversed as soon as the economy looks strong enough to bear it. McCafferty stated that he did not know whether he would vote for a rate hike at the next monetary meeting.
The US goods trade balance narrowed to $64.8bn for February from $68.8bn the previous month. There was a slight drop in exports but that was eclipsed by a sharper decline in imports for February. Consumer confidence was its highest in over 16 years, surging past consensus forecasts at 125.6 for March and up from a revised 116.1 the previous month. There was a firm reading for the Richmond Fed manufacturing index and the Case-Shiller 20-city house-price index rose 5.7% in the year to January.
Fed Vice Chair Fischer stated that a further two rate increases for 2017 would seem right, with other members also calling for the steady removal of monetary accommodation. Overall, the US currency regained some support with the Dollar index strengthening to over 99.50.
The Eurozone had no tier one data or developments on Tuesday, with the Euro unable to move above the 1.0900 mark against the Dollar. There were no major comments from European Central Bank officials on the prospects for policy tightening.
Data to Watch: GBP UK Government triggers Article 50. 9:30am GBP Consumer Credit (Feb), Mortgage Approvals (Feb). 2:25pm EUR Donald Tusk Speech. 3:00pm. US Pending Home Sales (MoM & YoY, Feb).