Scotts way heavy on the Pound
GBP – The British Pound witnessed notable weakness during early this morning in wake of news that UK Prime Minister Theresa May’s proposal for another Scottish referendum. The pound fell against all its major peers after The Times reported that U.K. Prime Minister Theresa May’s team is preparing for Scotland to potentially call for an independence referendum in March.The GBPUSD pair dipped 0.5% to around the 1.2400 level. Focus continues on the passing of the EU exit legislation, enabling the UK government to trigger Article 50.
The bill is currently in the House of Lords and the so-called committee stage begins on today, where the Lords will discuss and vote on amendments. It is widely viewed that the Lords will not delay the bill and the UK remains on track to trigger Article 50 by the end of March, perhaps at the EU summit in Malta on 9-10 March. If the Lords agree to the amendments, the bill will go back to the House of Commons for approval and then back and forth between the two chambers until the wording is agreed upon.
EUR – The Euro maintained a solid tone in European trading on Friday, with the principal reasoning being further strong support for German bonds as yields continued to decline with 2-year yields at record lows below -1.0%. The lack of yield support for the Euro tends to limit potential support for the currency and there were further underlying concerns surrounding the French Presidential election.
One of Germany’s most senior banking executives, Dr Andreas Dombret, has said the vote to leave the European Union should not be taken as an excuse to “penalise” the City. In a private meeting in Frankfurt earlier this month, he said that London’s position as the financial services “gateway” to the EU could be undermined and that the Brexit negotiations will be a “two-way street”. He, however, made it clear that Germany saw Britain as an ally, particularly when it came to maintaining global regulatory standards.
USD – The greenback had a mixed weekend against its major counterparts as the market looks forwards to the US President Donald Trump’s first address to Congress tomorrow. A lack of details over the new administration’s expansive fiscal policies has been weighing on the US Dollar and hence, volatility would be a key theme in the FX markets at the start of a new trading week.
In the meantime, we see some data in the US docket including monthly durable goods orders and spending home sales that will give us a first impression of whether investments continue to gain momentum as seen during the second half of 2016. Alongside these figures, we have Dallas Fed President Robert Kaplan’s speech which could cause some excitement in the market ahead of Trump’s address this week.
Data to watch: USD Durable Goods Orders, USD Durable Goods Orders ex Transportation, EUR Consumer Confidence, EUR Industrial Confidence.