Pound still benefiting from last week’s upswing

The pound is still benefiting from the upswing last week, although down from the highs of Tuesday and Wednesday, after Commons amendments meant that a no-deal Brexit seemed less likely.

The US dollar weakened as Trump criticised Fed Chair Powell as ‘someone who likes raising rates’ and factory data sector came in lower than expected. However, there is some positivity on the horizon as indications points to a China-US trade deal making progress.

We’ve now less than a month until the 29th March Brexit deadline. Whether that deadline is met or not, there’s likely to be a lot of volatility on the horizon. Find out how to control that with a forward contract by speaking to your Business Trader on 020 7898 0500.

GBP: ERG draws up Brexit demands

The pound continues to benefit from last week’s upswing, albeit slightly reduced from the highs of Wednesday. However, UK factories have been slashing jobs and stockpiling at a record rate, as manufacturing is hit by Brexit uncertainty. Markit’s monthly report on British manufacturing reveals that Brexit has driven firms to stock up on raw materials and components in case of trade disruption.

The UK’s manufacturing PMI showed slower growth in February; however, is better than the weakness suffered by the Eurozone factories. Coming up today, Markit’s construction PMI is expected to show that Brexit uncertainty is hurting the building industry.

Meanwhile, the Sunday Times reported that the ERG has laid down three tests that the PM needs to meet to gain their support for her deal. These are a legally binding clause that ‘unambiguously overrides’ the text of the withdrawal agreement, stronger language that the Irish border backstop plan will be temporary, and a ‘clear and unconditional route out of the backstop if trade talks fail’.

This signals that the ERG are prepared to fall into line and potentially back Theresa May’s deal. It will be interesting, however, to see if she succumbs to these requests. As it stands, nothing is tabled in the House of Commons this week on Brexit voting.

EUR: ECB meeting to highlight weakened economic performance

Despite some indicators coming in better than expected over the last week, the Eurozone economy is still not looking good. GDP and CPI are both underachieving compared to the ECB’s December Staff Projections – and we will likely see growth and inflation forecasts reduced in the March Staff Projections.

This week we will see PMI data released on Tuesday and the ECB interest rate decision on Thursday. It seems unlikely we’ll see a rate hike in June now, despite previous hints to the contrary.

The euro has remained relatively flat against the pound over the weekend, as the latter remained buoyed by the markets’ positivity on a potential extension of Article 50.

USD: Fresh optimism for US-China trade deal

Along with the UK and the Eurozone, the US factory sector has also slowed, as seen in two rival surveys. Manufacturing growth has reached the lowest level in two years and is much worse than what was expected by economists.

President Trump said on Saturday that the US dollar is too strong and is hurting US competitiveness. He again criticised Fed Chair Powell as ‘someone who likes raising rates’. This was responsible for the slightly lower level of the USD when markets opened this morning.

The Wall Street Journal has reported that, according to sources on both sides, China and the US are in the final stage of completing a trade deal. Beijing offered to lower tariffs and other restrictions on American farm, chemical and auto products while Washington is considering removing most, if not all, sanctions levied against Chinese products since last year. Despite this, sources did also caution that hurdles still remain.

The monthly report on US Non-Farm Payrolls will be released on Friday, meaning that we could see the dollar affected heavily, depending on the results.

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