Sterling fended off another negative data surprise yesterday after the Bank of England’s favoured inflation measure, the Consumer Price Index, fell below the 2% target for the first time in 48 months, but then conceded to a swathe of dollar strength in the afternoon. The slump in inflation was predominantly driven by a fall in energy prices and adds to the Bank of England’s recent woes after a worse than expected GDP reading on Monday. Today, Brexit comes back to the fore as Theresa May looks set to face another defeat in the House of Commons. The vote, which is scheduled for 19:00 GMT tonight, is only symbolic but could see her Brexit strategy be sabotaged yet again. Tonight’s vote is a gesture from Parliament to re-endorse the PM’s plan to seek changes to the contentious backstop element, as outlined in the January 29th amendments. The wording of tonight’s vote also means that support from the Eurosceptic’s would suggest their endorsement of a no-deal Brexit being removed from the table, which remains a sticking point for the Economic Research Group.


The euro bottomed the G10 currency board yesterday with no new headlines coming from US-China trade talks and more weak Eurozone data piling up. Industrial Production in the EZ shrank by 0.9% in December, more than doubled the expected contraction, although reducing the gap from November’s negative 1.7% growth. This morning, the euro has had mixed feelings with the release of the German GDP growth for Q4 2018. From a 0.1% expansion forecast by surveys, the data reported stagnated growth, after a 0.2% contraction in Q3. Despite the figure missed expectations, the somehow feared technical recession in Germany did not materialise, offering some respite for the euro from further depreciation and negative data releases. Another wave of political unrest arose, however, this time in Spain. This occurred after the Socialist minority government had its budget plans blocked yesterday in parliament, raising the chance for snap elections next April. Despite these events having a muted effect on the single currency and the Spanish-German yields spread on 10-year bonds remaining stable, which is a key barometer of long-term risk, today could be another test day for the euro as developments on this matter unfold. Eurozone growth and employment data in Q4 released at 10:00 GMT, could also be among the market’s movers.


The US dollar strengthened against the majority of the G10 currency board yesterday after news broke that a second governmental shutdown may be avoided, with a vote scheduled tonight in Senate over the proposed spending bill. However, President Trump has refused to give any indication on whether the bill will be graced by his signature. Meanwhile, the possibility of a 60-day extension to the tariff deadline has increased after the Deputy Secretary of the US Department of Agriculture stated that both US and Chinese presidents are set to meet in March. This afternoon, the Producer Price Index measure of inflation is released for January along with December’s Retail Sales data.


The loonie, along with other resource sensitive currencies such as AUD and NOK, fended off the broad dollar strength relative well yesterday as commodities liked the increasing possibility of a Trump-Xi trade pact. To compound the loonie´s positivity as WTI prices continue to climb. Crude currently sits at around $54 a barrel after rallying from comments from Saudi Arabia over further supply cuts and comments that the US will aim to reduce Iranian oil exports to zero. The housing sector, another issue in the Bank of Canada’s agenda, will have some news to provide today, with New Housing Prices Index being released at 13:30 GMT.