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There’s no turning back, we’re lost in Brexit

There’s no turning back, we’re lost in Brexit

Britain’s departure from the European Union (EU) is “an historic moment from which there can be no turning back”, Theresa May has said. Article 50 of the Lisbon Treaty gives both sides two years to reach an agreement, so unless the UK and the 27 remaining EU member states agree to extend the deadline for talks, the UK will leave on Friday 29 March 2019.

Speculation that the UK will be penalized by the EU in the form of a Hard Brexit is gathering pace. It’s believed that this will aim to discourage anti-EU voices in other parts of the Eurozone. But it’s easier said than done for the EU.

The UK accounts for 17% of the EU GDP and is a major consumer of EU goods, including being one of the biggest markets for German vehicles. Therefore, a Hard Brexit looks unlikely. Another point to consider is whether the negotiations will be completed in the two-year period. Given the size of the UK economy, the talks could easily last longer. Meanwhile, the market hopes that the negotiations will happen behind the closed doors to ensure that the pair begins responding to economic data releases.


US pending home sales data printed the strongest result for 10 months with a 5.5% increase for February, although the overall impact was limited with firm growth priced in. Chicago Fed President Evans reaffirmed his call for a further one or two rate hikes for 2017. Boston Fed head Eric Rosengren was more hawkish in stating that four hikes may be needed this year, with a faster move to policy normalisation to prevent economic overheating.

The comments provided US currency support, yet there was no significant response in US bond yields. Overall, the Dollar maintained a firm tone, but the Euro found some support below 1.0750.


In the Eurozone, source reports emerged around midday from the European Central Bank (ECB) which suggested that forward guidance at the April meeting will be unchanged. In March, the ECB caused a bigger reaction than expected as it looked to signal reduced tail risk rather than an imminent exit strategy. The Council is concerned over a potential surge in bond yields and is reluctant to change the message before June. Inevitably, there will be debate over whether the comments are representative, but the Euro came under pressure with a decline to lows below 1.0750 against the Dollar.

The latest opinion polls indicate that Macron had extended his lead over National Front leader Le Pen in a theoretical second-round Presidential election contest. This has eased market concerns surrounding the outcome.

Data to Watch:
10am EUR Consumer Confidence (Mar), Services Sentiment (Mar), Economic Sentiment Indicator (Mar), Industrial Confidence (Mar). 1:30pm US Gross Domestic Product Annualised (Q4), GDP Price Index (Q4), Initial Jobless Claims (Mar), Core Personal Consumption Expenditures (QoQ) (Q4), PCE Prices (QoQ) (Mar).

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