Post date: 02/03/2018 16:58
The Sterling ended the week at a 6 week low against the USD and a 3 month low against the EUR. Not much information data wise for the UK but Brexit speculation is causing problems for the pound with a potential government collapse. Talks of a general election could open the door to another referendum.
Former Prime Minister Sir John Major launched a stinging attack on the government’s Brexit strategy and demanded that MPs be given a free vote on the final deal – including the option of a second referendum. The former Tory PM said that Theresa May’s ambition to secure a comprehensive trade deal with the EU was unrealistic and that the UK could end up crashing out of the bloc. All eyes were on May on Friday afternoon as she delivered her Brexit Strategy Speech. It didn’t really cause too much volatility although May still remains bullish.
The euro strengthened on the back of EU's Chief Brexit negotiator Michel Barnier’s briefing on Brexit. He presented a relatively hard stance on Brexit by stressing that a transition agreement is not a given. On the back of all these talks Brexit negotiations are likely to be complicated and be dragged out. The EU’s hard stance is creating negativity for the UK – bringing GBP/EUR to a 3 month low.
On Sunday Italy will have their general election so expect to see some volatility around this. Subsequently any sign of a coalition like Germany will no doubt shake the euro. As usual the eurozone as a whole continue to post fairly good economic data throughout the week, keeping the currency strong and holding its positions.
The USD has strengthened throughout the week against the EUR and GBP. GBP/USD and EUR/USD both hit a 6 week low due to growing fears of a ‘Hard Brexit’ and aggressive Fed rate hike prospects. There is rising demand for the USD against its main competitors amid expectations of the faster pace of Fed tightening, following Fed Chair Powell’s optimism over the US economic outlook.
Jerome Powell has stated that there could be four potential rate hikes this year. Additionally there are still worries of accelerating inflation in the US. GDP figures in the US came out worse than expected, falling to 2.3% from 2.4% on Wednesday. On the plus side, inflation data was positive on Thursday so this evened things out for the greenback. It looks like the USD is finally starting to recover after January's sell off.