Plan A re-wrapped
Sterling was hampered early on by political speculation ahead of the “Plan B” revelation but managed to claw back some ground on further speculation over efforts to resolve the Northern Ireland issue. Tough EU rhetoric limited potential gains and Sterling dipped to near 1.2830 against the Dollar and 1.1300 against the Euro.
Theresa May’s Brexit update confirmed discussions with the EU would continue. There was some hope of movement on the Northern Ireland backstop and she also promised increased flexibility on future-relationship negotiations. Some parliamentarians asked whether this wasn’t just Plan A with a new name. The Pound strengthened on expectations that parliament would veto a ‘no-deal’ outcome or that Article 50 might be extended, postponing the EU departure. The Labour Party edged closer to backing another referendum. Government Bond (Gilt) yields moved higher, assisting a Sterling climb to near 1.2900 on the Dollar and 1.1350 on the Euro where potential corporate merger activity also provided support.
Weaker global risk conditions this morning have limited Sterling support as we await jobs-market data. Constantly evolving political developments maintain the potential for choppy Sterling trading.
Trading volumes were subdued with a lack of front-line data and US markets closed for the Martin Luther King holiday.
The US currency gained fresh support against commodity currencies which helped provide wider Dollar support during the day. The USD index is prolonging the rebound from YTD lows in the 95.00 level seen earlier in the month, already gaining more than 1.5%. The Greenback is deriving support from the lack of any significant progress in the US-China trade talks, stagnant Brexit negotiations, and the probable re-assessment of fundamentals in the Euro area.
The IMF downgraded its global growth forecast for 2019 to the weakest it has been in three years, which only served to hinder the Euro. Combine this with the negative assessment of Eurozone growth and renewed fears over the Italian debt crisis and you have a tough trading atmosphere for the single currency.
The German Bundesbank also revealed poor domestic growth figures for Q4 of 2018 which reinforced the weak outlook for the region. Growth remains muted and German bond yields edged lower yesterday, causing the Euro to struggle against both the Pound and the Dollar.
Data today includes average earnings and the ILO unemployment rate out of the UK, the economic sentiment out of Germany and the EU, as well as the usual focus on the British political situation.
Data to watch:
24H CHF World Economic Forum – Davos
09:30 GBP Average Earnings excluding Bonus (3Mo/Yr) (Nov)
09:30 GBP Average Earnings including Bonus (3Mo/Yr) (Nov)
09:30 GBP ILO Unemployment Rate (3M) (Nov)
09:30 GBP Claimant Count Change (Dec)
09:30 GBP Public Sector Net Borrowing (Dec)
10:00 EUR ZEW Survey – Economic Sentiment (Jan) (Germany)
10:00 EUR ZEW Survey – Current Situation (Jan) (Germany)
15:00 USD Existing Home Sales (MoM) (Dec)
22:45 NZD Consumer Price Index (YoY) (Q4)
22:45 NZD Consumer Price Index (QoQ) (Q4)
23:50 JPY Adjusted Merchandise Trade Balance (Dec)
23:50 JPY Exports (YoY) (Dec)
23:50 JPY Merchandise Trade Balance Total (Dec)
23:50 JPY Imports (YoY) (Dec)