Month-end volatility expected
With the markets perceiving a more optimistic Brexit stance, Sterling continued to gain across the board. The gains were underpinned by further expectations that a ‘no-deal’ outcome would be ruled out within parliament and the trade-weighted index strengthened to a ten-month high. Significant increases in UK bond yields also helped underpin Sterling sentiment although the effect was offset by higher yields in other major markets.
The government survived a series of votes in the House of Commons, maintaining expectations that March 29th would, at the very least, not herald a hard Brexit. There were also rumours of another meaningful vote next week. Having risen sharply, the Pound was vulnerable to a correction but it held most of its daily gains. Sterling opens around 1.3300 against the Dollar and just below 1.1700 on the Euro. Beware of volatility caused by political and month-end pressures.
The US pending home sales data was stronger than expected with a 4.6% gain for January. The US goods trade deficit widened sharply to $79.5bn from $70.5bn previously which triggered some downward revisions to the fourth-quarter GDP data.
The Greenback also found some support from renewed uncertainty over the progress in the US-China trade talks following not-so-optimistic comments by the US Trade Representative Robert Lighthizer, saying that it was too early to predict an outcome in US-China trade negotiations. Meanwhile, the Fed Chair Jerome Powell, in his second appearance before the Congress, reiterated the central bank’s cautious stance on monetary policy and did little to influence the price action.
The Dollar secured fresh support against commodity currencies as tensions between India and Pakistan triggered some caution over risk conditions and the Euro against the Dollar retreated to the 1.1360 area before consolidating around 1.1375.
Political uncertainties are dominating markets at the moment with Brexit and the US-China trade war featuring most prominently. Concerns over economic growth and most Central Banks becoming more cautious is not helping the situation. Buba President Weidmann stated there was no need to be overly pessimistic, even though the slowdown lasted for longer than expected.
EU industrial sentiment remained weak but German bond yields increased rapidly which provided some Euro support meaning, versus the Dollar, it reached just below the 1.1400 level. Strong readings for EU services and the overall EU index was little changed, meaning the pair stayed at that level.
Data today sees CPI numbers out of France, Spain, Italy and Germany. There is also the Swiss KOF leading indicator but the focus will be on Germany’s harmonized index of consumer prices which will probably generate some volatility.
Data to watch:
07:48 EUR Consumer Price Index (EU norm) (YoY) (Feb) (France)
08:00 CHF KOF Leading Indicator (Feb)
13:30 USD Fed’s Clarida speech
13:00 EUR Harmonized Index of Consumer Prices (YoY) (Feb) (Germany)
13:30 USD Continuing Jobless Claims (Feb 15)
13:30 USD Initial Jobless Claims (Feb 23)
13:30 USD Gross Domestic Product Price Index (Q4)
13:30 USD Gross Domestic Product Annualized (Q4)
13:30 USD Core Personal Consumption Expenditures (QoQ) (Q4)
13:30 USD Personal Consumption Expenditures Prices (QoQ) (Q4)
13:30 CAD Current Account (Q4)
13:50 USD Fed’s Bostic speech
14:45 USD Chicago Purchasing Managers’ Index (Feb)
21:30 AUD AiG Performance of Mfg Index (Feb)
21:45 NZD Building Permits s.a. (MoM) (Jan)
23:30 JPY Tokyo Consumer Price Index (YoY) (Feb)
23:30 JPY Tokyo CPI ex Food, Energy (YoY) (Feb)
23:30 JPY Tokyo CPI ex Fresh Food (YoY) (Feb)
23:30 JPY Unemployment Rate (Jan)
23:30 JPY Jobs/applicants ratio (Jan)