Sterling weakened by nearly a percentage point against the US dollar and 1.2% against the euro last week. These losses came despite little Brexit activity and both the US dollar broadly selling-off on a dovish Federal Reserve and the euro facing softening Eurozone data. This week the Bank of England dominates sterling’s outlook as May continues to try and squeeze Brussel’s for a drop more to take back home. The central bank is undoubtedly going to keep interest rates on hold on Thursday, due to Brexit uncertainty continuing to dominate the outlook for the UK economy. Market participants are likely to look past the usual Brexit comments by Governor Mark Carney and instead focus on the bank’s outlook for growth and inflation this year. With both forecasts being based upon the current Brexit status quo, any sign of inflation remaining at target and the UK economy continuing on track will prompt a hawkish bias. The market still implies a 50/50 chance of the BoE hiking this year, but the shift in sentiment is likely to be rapid once uncertainty over the future of the UK economy clears.


The single currency fought off a technical recession in Italy, downwardly revised growth forecasts from Germany, and the seemingly never-ending string of negative surprises in data last week to post a 0.43% gain against the dollar. This week the Eurozone data calendar is filled to the brim yet again. Key data points such as German factory orders and the European Central Bank’s quarterly economic bulletin will be under severe scrutiny as the manufacturing sector in the European powerhouse continues to slow down and the Eurozone economy wobbles. In addition to this, attention will be back on Rome following last week’s growth data from Italy. After reaching a tentative agreement with the EU, the Italian coalition may need to increase spending yet again to deliver on the economic rebound promised in both parties elections campaigns.


The greenback had a modest end to the week despite unexpectedly strong data released on Friday. The January change in nonfarm payrolls showed 304k jobs were added to the economy from the 165k expected, while the ISM Manufacturing Purchasing Manager Index surprised with a solid 56.6, beating the 54.0 reading forecast. These data points confirm Federal Reserve Chair Jerome Powell’s optimism on the shape of the economy, although the relatively biased stance of the Federal Reserve towards the dovish side keeps the dollar on hold from renewed strength. In contrast, US earnings are set for their first decline in 3-years as measured by Factset’s Wall Street consensus. Estimates point towards a 0.8% drop in earnings per share, evidencing the headwinds the US economy continues to face. US-China trade talks, meanwhile, are set to remain on a positive tone, with a meeting between presidents Trump and Xi probably taking place on the 27-28th oh this month, right before the tariffs truce is scheduled to end.


The loonie ranked the top of the G10 currency board last Friday against the US dollar, supported by optimistic prospects on an oil price recovery. Both OPEC production cuts and a reduction in Venezuelan oil supply are helping prompt exports of Canadian oil, building the case for further currency strength. Data from the wider economy, however, remains weak, after the second monthly GDP contraction in the last three months was announced last week. Based upon the recent data the Bank of Canada will likely be in a “wait and see” period, but jointly the Federal Reserve is also expected to remain on hold. This suggests the loonie’s price action will be dominated, yet again, by developments in the crude oil market. Today, the Bloomberg Nanos Confidence will be released at 15:00 GMT.