Sterling flurried with a weakening US dollar yesterday, as the US celebrated a bank holiday. The main political headline for the UK came from news that 7 Labour MP’s had defected to create ‘The Independent Group’. Many struck comparisons with yesterday’s move and that which occurred in 1981 when the “gang of four” defected Labour to create the Social Democratic Party, alleviating pressure on then-Prime Minister Margaret Thatcher’s mandate. With a smaller contingency being whipped against current Prime Minister Theresa May’s proposed Brexit deal, and in a time where every vote matters, there is a tenuous link with yesterday’s political drama, sterling’s minor rally and the increasing probability for May’s deal being approved. Meanwhile, Honda announced it would shut down a major production facility in Swindon after Nissan declared earlier this month that Brexit uncertainty was one of the main reasons not to produce their next generation SUV in the UK. This is an indicator that some of the damage the Brexit uncertainty has done may not be easily reversed, which could limit the upside for a sterling rally in the case we eventually would see a Brexit deal. This has been evident in the worsening manufacturing indices in 2019. Today, at 09:30 GMT, UK Labour market data for December is released. This is likely to be market moving for sterling after the Bank of England leaned heavily on wage growth and domestic inflationary pressures to soothe market concerns over a slumping Brexit riddled economy.


The chorus of European Central Bank doves is growing louder now the ECB’s Chief Economist Peter Praet added another verse of how the “Governing Council will always find ways and means of acting if it needs to”. Given that yet another figurehead of the ECB joined the swelling calls of caution, EUR held surprisingly well as it ended in the top half of the G10 currency board on a day with little volatility. One reason can be that a dovish shift of the ECB is already largely priced in, while another explanation can be sought in the fundamental causes of the slowdown in the Eurozone. At this moment, it can still be argued that external factors are the prime drivers of the lower growth pace, however, if the signs of a domestic slowdown strengthen, the ECB may indeed show what other dovish cards they can pull out of their high hat. For now, today’s first surprises may come from the Eurozone Current Account at 9:00 GMT, followed by the ZEW German Economic Sentiment at 10:00.


Yesterday, the US dollar closed at the middle of the G10 currency board as trade optimism continues to dominate global markets. US-China negotiations seem to follow a positive path while markets are confident in Donald Trump extending the March 1st deadline that would increase tariffs on Chinese imports by 25%. Yet, another trade war front may be opening up as an investigation has been filled on whether imported vehicles pose a national security threat or not. On a quick reaction, the European Union has threatened back with possible retaliation should punitive car tariffs be installed against European exports, with European Council President Juncker threatening to reduce US soy purchases. Meanwhile, the political tensions in the US keep flaring after sixteen states have sued Mr Trump on his attempt to raise funds for the border wall calling a national emergency and bypassing the Congress mandate. As these events unfold, markets await for tomorrow´s release of the last FOMC meeting minutes, looking to find clues on the Federal Reserve next steps.


WTI crude oil prices rose for the sixth day in a row yesterday, which countered the potential negative impacts for CAD from the uncertainty caused by the US Department of Commerce’s report on whether imported vehicles post a threat to the national security. As Canada is the second biggest exporter of cars to the US after Mexico, this could threaten a large part of the Canadian economy, especially as the USMCA treaty still needs to be ratified by the Senate. So far the findings of the report have not been disclosed yet, but President Donald Trump has 90 days to act on these findings.