The Pound was the star among major currencies last week, rising against every G10 peer and consolidating solidly above the 1.30 level against the Dollar.
The catalyst was the resignation of several MPs from the Tory and Labour parties, bringing closer the prospect of an explicit Parliament vote against a no-deal Brexit. Elsewhere, higher oil prices on concerns about Venezuelan sanctions, positive rumours on the state of the US-China trade talks, and a generally strong tone for risk assets worldwide led to a broad rally in emerging market currencies, particularly those most exposed to commodity prices.
Emerging market currencies were provided additional assistance by news out over the weekend that President Trump would be pushing back the 1st March deadline for a trade deal to be struck between the US and China over trade. This is in line with our view that the Trump administration is highly motivated to reach an agreement with China after a string of political defeats at home.
On Friday, Eurozone flash inflation data for February will focus traders’ attention. Any further increases in the core data would likely provide decent support for the Euro.
Once again Brexit headlines overshadowed all other developments as far as the Pound was concerned. Sterling remains buoyed by expectations for a delayed Brexit should the upcoming parliamentary vote fail to pass, of which is now set to take place on 12th March – somewhat later than initially anticipated.
It should be noted, however, that the UK labour market so far shows little signs of any negative effects from Brexit uncertainty. The labour report for the last quarter of 2019 showed strong job creation combined with healthy wage gains. While Sterling was mostly buoyed by the news that 11 Europhile Labour and Tory MPs had resigned from their respective parties, the strong jobs data certainly helped. Focus will be on Prime Minister May’s speech on Tuesday.
Economic data turned mixed in the Eurozone last week, which is at least a step up from the steady stream of disappointments of the past few weeks. Most importantly, the PMI indicators of business activity ticked upwards, compensating for another disappointing manufacturing number and pulling the all-important composite index out of its recent nosedive.
This provides modest support for our view that with healthy job creation numbers across the Eurozone and modest but steady real wage increases, the prospects for a recession are fairly remote.
Weakish economic data out of the US gave the Dollar a generally negative tone for all of last week. The noncommittal minutes from the last Federal Reserve meeting did little to change that.
We don’t see any clear catalyst to change the recent range trading of the Dollar against G10 currencies for at least the next few weeks. However, we reiterate our bullish view of most emerging market currencies given an environment of low and steady US rates and no recession in sight in any of the world’s major economic blocs.