Sterling rebound pauses ahead of Brexit Day
The Pound moved above the 1.2600 mark against the Dollar for the first time in seven weeks, although it was unable to hold above this level. Sterling consolidated near 1.1560 against the Euro.
Market participants continued to dump the Buck in response to the ‘Trumpcare’ fiasco last Friday. For many, the healthcare bill has been the moment that has crystallised the risk of economic failure under Donald Trump. Ironically, the reaction in the currency markets to his legislative failure will favour the US president. Trump wants to improve the competitiveness of US companies abroad and a weaker Dollar will help him to deliver it.
In the US data space, the Conference Board’s Consumer Sentiment and Goods Trade Balance are due later today along with speeches by the Fed’s Janet Yellen, Esther George and Robert Kaplan.
German IFO index figures beat consensus expectations, strengthening to 112.3 for March and printing the strongest reading since July 2011. The data will maintain confidence in the German growth outlook, especially with interest rates negative in real terms (inflation higher than interest rates).
European Central Bank (ECB) board member Lautenschlaeger has stated that the ECB should be prepared for a change in policy. Bundesbank head Weidmann commented that the issue of exiting expansive monetary policy had to be discussed.
Chief economist Praet was more dovish with comments that the central bank needs to look past headline inflation and that substantial monetary accommodation (e.g. quantitative easing, bond purchasing and interest rates) is needed to lift underlying inflation. He did, however, also comment that monetary policy would likely be amended through the deposit rate.
The ECB rhetoric will continue to be watched closely as the bank edges towards a slight policy adjustment while remaining committed to an accommodative policy.
The Euro continued to edge higher and broke above the 1.0900 level against the Dollar for the first time since the second week of January, but triggered selling interest and drifted back towards 1.0850 again.
Data to watch: 2pm USD S&P/Chase-Shiller Home Prices Indices (YoY) (Jan). 3pm USD Consumer Confidence (Mar). 5:50pm USD Fed’s Yellen Speech.