Currency Note

Brexit and Article 50 back in focus

By Callum Holmes February 21st, 2017

ECB

Sterling may be much more volatile again in the run-up and aftermath of the government triggering Article 50. What makes the impact of political updates worse is that the UK economy is beginning to show cracks.

Let’s take a closer look at sterling, euro and dollar markets.

UK political risk returns

On a day of little data or news sterling managed to gain against both the euro and the US dollar.

Today we will hear the views of the Bank of England’s Monetary Policy Committee on inflation and the economic outlook when MPC members will be speaking before the parliament’s Treasury Committee. Given the recent set of data, showing inflation and average earnings converge and retails sales still under pressure, it will be an interesting meeting.

For a few days it wasn’t so much politics that moved the pound but this week the markets will be focusing on Article-50-related updates again. The next step in the Brexit process is for the House of Lords to approve the proposed bill. It is unlikely that any changes will be pushed through at this late stage. So the next big moment will be when Article 50 is triggered, which looks likely to happen on 9th or 10th March, during the next major EU meeting.

First major data releases of the week due out

Despite this week being heavy on economic data, yesterday was a quiet start to the week. German Purchasing Price Inflation beat expectations. Irish consumer price data and French bond sales saw a marginal increase in yield, while remaining in negative territory though.

We also saw continued political uncertainty in the three European economies that will have elections later in the year. The euro fell against the pound but remained steady against the US dollar.

Today is going to be a busy day, with the Eurozone as well as Germany releasing Purchasing Managing Index (PMI) figures for their manufacturing and service sectors as well as a composite figure. The PMI figures are high-impact data releases that could cause volatility in euro markets. We’ll also see French consumer price data.

Dollar markets due to pick up after President’s Day

It was a quiet start to the week, with US bond and stock markets closed for President’s Day, a national holiday in the US.

Generally, sentiment is being boosted by expectations of corporation tax cuts and deregulation. Later this week the minutes from the Federal Reserve’s most recent meeting will be released, which should echo Janet Yellen’s recent hawkish tone. If so, we could see a little bit of movement in the markets.

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