News & analysis


Sterling gears up for yet another pivotal Brexit week. The next 5 days determine whether we leave the EU with a deal in place in the next month or whether a longer delay to Article 50 will be imposed. May will continue to try to swing her DUP coalition party behind her withdrawal bill and should she get the green light a third meaningful vote will occur this week prior to Thursday’s European Council summit. Chancellor of the  Exchequer, Philip Hammond, stated over the weekend that the government would only propose another vote should the odds look favourable of it passing. The market will continue to listen to noisy headlines in the run-up to Thursday to try and gauge the likelihood of the DUP’s support. Should this be forthcoming, partly due to a £1bn package likely coming their way in Autumn and a new “Stormont lock” meaning EU regulations in NI would be effective in the rest of the UK, the question is if the Tory eurosceptics fall in line. The prospect of a sudden success for May this week remains a tail risk for now, as sterling continues to trade under the assumption that an extension in Article 50 is the likeliest option. Meanwhile, the data calendar is loaded for sterling with labour market data released Tuesday, CPI Wednesday and Retail Sales Thursday morning before the Bank of England decision in the afternoon.


The lack of data surprises on Friday kept the single currency pinned in the middle of the G10 currency board, with losses against the rallying Scandies and gains against USD and CAD. This week may bring more action with the Q4 Wage Growth Figures on Tuesday, together with German ZEW Economic Sentiment. The European Union Economic Summit on Thursday will likely be more relevant for sterling, but the Flash Purchasing Manager Indices on Friday may still offer a chance for volatility this week.


The US dollar continues to trade with a soft tone this morning, with Sterling the only loser against the greenback among the G10 currencies. Despite this, the fact that last week was the best for equities since November last week continues to lift sentiment in global markets. The data calendar looks light for the greenback before the Fed releases their latest rate decision on Wednesday with only Durable Goods on Tuesday standing out. While we believe the Federal Reserve will need to tighten one more time before the year is out, they will most probably remain in their dovish stance this week. After previously stating that Fed officials were close to a decision on the ending of balance sheet runoff, investors and journalists alike will dial into Powell’s comments on the topic on Wednesday. Should the governor confirm that runoff will end this year, the finishing touches to the Fed’s pause policy will be added.


The loonie bottomed the board of G10 currencies on Friday, despite Manufacturing Sales bucking the global trend of a slowdown in the industrial sector with a solid beat. The January reading showed a 1.0% increase, better than the 0.4% growth expected, while the December reading was adjusted upwards as well. After the slew of dovish remarks of Bank of Canada’s Deputy Governor Carolyn Wilkins on Thursday this single data point, however, will unlikely make a dent in the BoC’s latest shift to caution. More promising contenders for this would be the Consumer Price Index and Retail Sales released jointly on Friday.