GBPEUR above 1.1600, a 12-month high27th February 2019
Bank of England (BoE) Governor Mark Carney stated that a ‘no-deal’ Brexit posed the biggest risk to financial stability, although his stance on the medium-term outlook was little more upbeat. Theresa May was reported to have made good progress with EU President Juncker on amendments to the political declaration. Sterling support remained high on expectations that a ‘no-deal’ scenario would be ruled out although Sterling still suffered very choppy trading.
Just before the European market close, reports emerged that Labour would back a second referendum, triggering fresh Sterling gains despite it being a political tactic to block Theresa May’s proposed deal. Theresa May is due to make a statement in the House of Commons today and speculation that she will move closer to ruling out a ‘no-deal’ outcome and extend the Article 50 timetable has increased.
As the rumours swirled, Sterling pushed ever higher registering a 12-month high of 1.1600 against the Euro around midnight. This morning, the Pound is holding above 1.3140 against the Dollar and it held above 1.1570 against the Euro.
The US Chicago Federal Reserve (Fed) national activity Index dipped sharply to -0.43 for January from a downwardly-revised 0.05 previously with weakness focussed in industrial production while employment made only a slightly positive contribution despite a strong increase in non-farm payrolls. The data reinforced uncertainty over the underlying outlook.
Atlanta Fed President Bostic stated that he expected to see one rate hike in 2019 and one further hike in 2020. According to Bostic, it was fine to run with a very slow pace of rate hikes and did not expect inflation to exceed the 2% target. Dallas head Kaplan commented that low inflation gives the Fed the luxury of trying to get more people working while vicechair Clarida reiterated that the central bank had the ability to be patient and monitor data.
The Dollar drifted weaker into the New York open and the Euro advanced to highs near 1.1370 before stalling. A decline in oil prices triggered some Dollar respite against commodity currencies and the Euro retreated to below 1.1350.
Yesterday saw fresh hopes that a no-deal Brexit would be avoided, meaning that the Pound strengthened significantly but so did the Euro after the European close. May is reportedly considering a delay, whilst Corbyn stated that Labour would support a second referendum which gave the markets some hope that Parliament could reach an agreement.
However, growing concerns over an economic slowdown in the Eurozone continued to weigh heavily on the single currency and proved the be the factor that stopped a runaway rally. The EURUSD advanced to 1.1370 before falling away due to declining oil prices to below 1.1350.
Data today includes German Gfk consumer confidence, French consumer confidence but more significantly inflation report hearings out of the UK, as well as a speech by Theresa May. Finally, just after lunch, the European Central Bank’s (ECB) Mersch will also give a speech which will be of interest.
Data to watch:
07:00 EUR Gfk Consumer Confidence Survey (Mar) (Germany)
10:00 GBP Inflation Report Hearings
N/A GBP UK Prime Minister Theresa May speech
13:30 USD Building Permits (MoM) (Dec)
13:30 USD Housing Starts (MoM) (Dec)
14:00 USD S&P/Case-Shiller Home Price Indices (YoY) (Dec)
14:00 USD Housing Price Index (MoM) (Dec)
14:30 EUR ECB’s Mersch speech
14:45 USD Fed’s Chair Powell Testifies
15:00 USD Consumer Confidence
21:45 NZD Imports (Jan)
21:45 NZD Exports (Jan)
21:45 NZD Trade Balance (YoY) (Jan)
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