Morning Report: 28 March 2017

28th March 2017 By: Ranko Berich

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GBP. Sterling rallied yesterday to its highest levels since the beginning of February against the dollar after news emerged that the UK will retain some of the European Union regulation after Brexit. As a result, the UK appears to be softening its stance towards the EU towards a more amicable standpoint in relation to trade agreements. Germany, at the same time, appears to be taking a separate route. In a recent interview, Angela Merkel indicated that the “priority is to keep the rest of the EU together”, as the integrity of the remaining block is under severe danger due to increasing anti-euro political parties. The UK will communicate the EU its formal intention of leaving the EU block at some point tomorrow, the same date the EU is holding a summit to begin the negotiations. No data will be released today.

EUR. The euro holds yesterday’s gains against the dollar, but appears to be taking a breather after EURUSD rallied for most of March. The euro is benefitting from an improving political outlook in the EU after Emmanuel Macron, the French candidate to the Presidential elections, reached new highs in the probabilities of wining the French elections; at the same time, Le Pen continues to lose momentum. At the moment, there is a 69% chance of a victory by Macron, as reflected by bookmakers. This represents a 16% jump since the beginning of March. Marine Le Pen, the National Front candidate, has dropped from 34% to 24% in the same period. No data will be released today.

USD. The dollar is recovering somewhat today after the Dollar index, the DXY, touched a 4-month low yesterday due to Donald Trump’s fiasco in Congress last Friday, when the US President had to postpone indefinitely the vote for the healthcare reform bill. US equities, which opened lower on the back of Trump’s healthcare failure, recovered most of the losses over yesterday’s session, as investors turn their attention to the tax reform. Federal Reserve’s official Charles Evans, spoke yesterday in Madrid, indicating that he only sees two hikes in 2017 if uncertainty lingers. Goods trade balance and wholesale inventories data will be released today at 13.30 GMT, and the Conference Board consumer confidence index is released at 15.00.

CAD. The loonie strengthened at the opening of the Asian session on Monday, but fell afterwards as it was unable to maximize gains against a weaker US dollar. Amid no data being released, the drop in crude oil prices limited CAD’s gains. Investors focused in Canada are looking for Thursday’s January GDP report.

UK news

FT: Angela Merkel toughens her position on Brexit. Chancellor’s stance hardens despite UK hopes of pressure from Germany’s car industry. Germany has hardened its stance on Brexit as Theresa May, Britain’s prime minister, prepares to launch the historic exit negotiations on Wednesday. Chancellor Angela Merkel, who made accommodating noises after last summer’s referendum, has adopted a tough position on issues such as the UK’s exit bill and the sequencing of negotiations, partly in response to increasing expectations that Britain is seeking a hard Brexit. “We have no interest in punishing the UK, but we also have no interest in putting European integration in danger over the UK,” Wolfgang Schäuble, the finance minister and Ms Merkel’s close ally, said in a recent FT interview.