‘No-deal’ fears reignited
Sterling spent most of Wednesday’s trading session in the negative territory and was being weighed down by reemerging Brexit uncertainties. Construction PMI dropped to the contraction territory in February, coming in at 49.5 from 50.6, all adding to the ongoing deterioration in the domestic fundamentals.
In the latest developments, EU chief negotiator Michel Barnier, following a meeting with UK Attorney General Geoffrey Fox and Brexit Minister Stephen Barclay, reiterated that they haven’t been able to find a solution to the Irish backstop issue. Adding to this, the UK Trade Secretary Liam Fox said that he didn’t rule out voting for a no-deal Brexit next week and further dampened the sentiment surrounding the British Pound.
Adding to his earlier comments, UK finance minister Philip Hammond was further noted saying that the government energies remain focused on the Brexit deal on Tuesday. Hammond called on pro-Brexit MPs to consider the deal carefully and was confident that Parliament will reject a no-deal Brexit.
The absence of further news on the US-China trade dispute seems to have poured cold water over expectations of a deal in the near term, removing some optimism around the Buck. However, the upcoming meeting between Trump and Xi Jinping is expected to spark bouts of volatility in the days ahead.
The latest ADP report showed that the US private sector employers added 183K jobs in February as compared to 189K expected. The reading, however, was largely offset by a sharp upward revision to the previous month’s reading, now showing the addition of 300K jobs (213K reported previously) and making it the best month since May 2015.
The US-China trade talks remain in centre stage ahead of the Trump-Xi meeting expected later in the month. The Greenback is also expected to stay somewhat cautious on fresh criticism by Trump to the Federal Reserve’s (Fed) monetary policy and the level of the Buck. However, the health of the US economy has come back to the fore following auspicious results from the Q4 GDP and other key indicators as of late, which appear to have not only motivated Dollar bulls to return to the markets but also poured cold water over speculations of a potential halt of the Fed’s tightening cycle.
In the data space, the usual Initial Claims are due later today along with Nonfarm Productivity and Unit Labor Costs, all followed by the speech by FOMC’s L.Brainard.
Yesterday saw some fairly significant swings for the Euro against both the Pound and the Dollar, however it settled virtually unchanged at the close of trading. Versus the Dollar, it dropped to a two-week low of 1.1286 but then recovered to 1.1326 in the afternoon. There was very little data out yesterday and it seemed as though investors were reluctant to take any aggressive positions ahead of the latest European Central Bank (ECB) monetary policy update, due today. The ECB is widely expected to leave its policy unchanged, with all eyes being on their updated economic projection and the press conference afterwards. Recent economic data for January has been weak for the Eurozone, so a dovish message is expected.
Data today includes unemployment data out of Switzerland, house prices out of the UK, Italian retail sales and a speech from the Bank of England’s Tenreyro at 9:30 am. As mentioned, all eyes will be on the EU with their GDP figures due, then their employment change numbers and finally, at 12:45, their deposit rate decision. Rounding off the data is the ECB’s monetary policy statement and press conference at 13:30.
Data to watch:
00:30 AUD Imports (Jan)
00:30 AUD Exports (Jan)
00:30 AUD Trade Balance (Jan)
00:30 AUD Retail Sales s.a. (MoM) (Jan)
05:00 JPY Leading Economic Index (Feb)
06:45 CHF Unemployment Rate s.a (MoM) (Feb)
09:30 GBP BoE’s Tenreyro speech
10:00 EUR Gross Domestic Product s.a. (YoY) (Q4)
10:00 EUR Gross Domestic Product s.a (QoQ) (Q4)
12:45 EUR ECB Deposit Rate Decision
12:45 EUR ECB Interest Rate Decision
13:30 USD Continuing Jobless Claims (Jan 25)
13:30 USD Initial Jobless Claims (Feb 25)
13:30 USD Nonfarm Productivity (Q4)
13:30 USD Unit Labor Costs (Q4)
13:30 EUR ECB Monetary policy statement and press conference
17:15 Fed’s Brainard speech
23:30 JPY Overall Household Spending (YoY) (Jan)