News & analysis

GBP

Sterling weakened throughout the course of yesterday’s trading as House of Commons Speaker, John Bercow, ruled out another meaningful vote this week if May’s deal hadn’t changed in detail. This has left May with 2 days to try and rustle up a new strategy before the coveted European Council meeting on Thursday. However, the odds are slim and are diminishing as quickly as May’s time window to execute a deal. The likeliest option now for the Brexit process is a longer extension to Article 50 than previously anticipated. The Sun newspaper claim that May will now formally write to Donald Tusk, the European Council President, and request an extension of up to 12 months with one caveat – the extension is much shorter should a deal be passed in the coming weeks. Outside of the Brexit sphere, UK labour market data is released at 09:30 GMT for the Nov/Feb period. The release should have some sterling impact given that the Bank of England previously referenced a tight labour market and wage growth as a cause to remain optimistic despite Brexit uncertainty.

EUR

For what it’s worth, the single currency approached the top of the G10 currency board yesterday, although, given the low levels of volatility, the gains remained very limited. Volatility for the euro may return soon, however, as the rising correlation between German Bund Futures and EURGBP indicate yields on German debt are becoming ever more sensitive to Brexit sentiment. Higher yields would make this exemplar euro-denominated investment more attractive, which can lead to flows into the single currency if the Brexit process eventually reaches a fruitful conclusion. Today should be an eventful day for the euro, with Brexit developments coming in thick and fast and the German ZEW Economic Sentiment at 10:00 GMT. Likely even more important to assess both the prospects for Eurozone consumers and the building inflation pressures the European Central Bank eyes, will be the Eurozone Q4 Wage growth, published at 10:00 as well.

USD

The front-end of the US yield curve, with the exception of the 6-month tenor, continues to fall as the market prices in further dovish tones from the Federal Reserve tomorrow evening. The move has led selling in the US dollar this week with the whole of the G10 currency board, with exception of the Brexit riddled pound and Norwegian Krone, posting gains against the greenback. Today’s data calendar remains strikingly empty, which suggests position taking before tomorrow’s Fed meeting may continue to drive price action on the dollar in this session.

CAD

The loonie ended yesterday’s trading session flat after a half a percentage point move peak to trough. Oil prices rose to a fresh 2019 high after OPEC + members reiterated their commitments to cut supply and steady the price of oil, but the loonie remained highly susceptible to a broad US dollar move in the afternoon. This morning, the Canadian dollar has begun to strengthen again as oil prices tick up marginally.

FX Elsewhere

Emerging Markets rallied against the US dollar as a whole yesterday as markets anticipate further dovish tones from the Federal Reserve on Wednesday. Falling US yields and reducing fears over US-China relations has provided a prime risk-on environment. Notably, the carry trade, which sees investors borrow in countries with low interest rates and invest in countries with high interest rates, has supported EM currencies such as the Russian ruble. Demand for Russian assets, especially government bonds, has suppressed yields over the last few trading days and helped the ruble break to an 8-month high.