Sterling bounces back on Brexit belief

4 minute read


The USD had two sets of data to contend with, neither of them hugely important but neither of them particularly helpful. ADP's employment change figure indicated 183k new jobs in February, slightly short of the forecast 183k increase. ADP's reading is seen as a pointer to the monthly change in nonfarm payrolls, contained in the official employment report.

The other figures, for balance of trade, were more embarrassing than damaging to the USD. As expected, they showed America's trade deficit widening to $59.8 billion in December, taking the shortfall for 2018 to $621 billion, the widest gap in ten years. Ironically, the president's tax cuts were so successful in stimulating the economy that imports increased more quickly than exports, making it impossible for him to deliver his campaign promise of a narrower deficit.


Euro zone ecostats were thin on the ground again. Italian retail sales rebounded by 0.5% in January, making at least some inroad to the previous month's 0.7% decline. Revised gross domestic product data confirmed quarterly growth of 0.2% in Q4 and leaving growth for calendar 2018 a tick lower at 1.1%. The EUR was just about unchanged on the day against the USD.

Top billing today goes to the European Central Bank president's press conference at 8.30am ET. He is unlikely to have to explain any adjustment to the bank's interest rates, for none is expected. It is likely, however, that he will have something to say on the subject of fresh monetary stimulus. Some sort of liquidity provision to the banks is anticipated. The EUR's day will depend on exactly by how much, and in what way, the bank intends to increase liquidity.


The Loonie had another nightmare, losing 0.4% to the USD. Oil prices were not the problem - they went nowhere - and neither were investors worried by a widening of Canada's trade deficit or the Ivey PMI's four-point decline to 50.6.

What did exercise them was a change to the wording of the Bank of Canada's interest rate statement. Holding its target for the overnight rate steady at 1.75% the BoC noted "increased uncertainty about the timing of future rate increases". Investors inferred not only that the bank is disinclined to take rates higher any time soon, it might not move at all in the foreseeable future.


During the entire London session investors remained cautious about the progress of the Brexit process. The media tone was typified by Singapore's Business Times observation "Pound languishes as hopes fade for Brexit progress". Then, at around 3.30pm ET, the House of Lords voted to attach an amendment to a trade bill that would require the government to join the single market after Britain leaves the EU.

It was not binding on the government: the House of Commons could reject the amendment. But it revived the belief among investors that parliament will prevent the no-deal Brexit so feared by commerce, industry and the GBP. Sterling led the major currencies, strengthening by 0.1% against the USD.


The yen also added 0.1% against the USD, though there was no consuming reason for it to have done so. The only Japanese data on offer were the Cabinet Office's coincident and leading economic indicators, which were less than helpful to the JPY. Both were lower on the month, the more important leading indicator falling a point and a quarter to 95.9.

Tonight's data have greater emotional significance. Gross domestic product is forecast to have expanded by 0.4% in Q4, with annualized growth of 1.8%. There will also be figures for household spending, earnings, the balance of trade and the current account.

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