Good morning,

GBP: Brexit to get another three months

This morning it has become clear that any extension that the UK will seek from the European Union will be ‘short’ and likely only as long as three months. This comes after Michel Barnier, the EU’s Chief Negotiator, told the UK yesterday that a long delay would only be granted if it “was going to serve a purpose”; largely thought to be either a second referendum or an election. Hence the request of a short extension, in a bit to finally sort ourselves out.

While last night’s ‘meaningful’ vote was cancelled, it now stands that Theresa May can get an extension and then out her deal back to the Commons in its new session after Easter. At the end of the day, however, without revocation or a deal then the UK is set to exit the European Union without a deal in June but not in March.

Sterling reacted slightly negatively to this news but has held up well, positioning for a longer extension hasn’t built up too much so disappointment and sterling selling may be limited.

While the UK data released yesterday was very strong – jobs growth adding over 220,000 positions in the past three months and wider pay rises – a short delay and a continuation of no-deal planning will act as a break on spending, growth and the Bank of England’s expectations for interest rate rises.

Today’s inflation numbers are likely to keep a lid on the Bank of England as well with the rate of cost of living increases expected to come in at 1.8%, below the BOE’s target of 2%.

USD: Fed meeting concludes

The Federal Reserve concludes its March meeting tonight and is expected to hold its policy rate unchanged in line with the wider market expectations. The central bank’s decision to hold interest rates as they are will not be the main news however with the ‘dot plot’ of Federal Reserve members’ expectation of where they individually expect the Fed Funds rate also set to be released. The previous iteration, released in December, showed that rate setters in the US expected interest rates in December to increase twice this year; expectations are that that could fall to a singular increase in 2019.

Such a pulling in of the Fed’s collective horns has been widely telegraphed by Fed members in recent communications, helping extend the recent weakness in the US dollar. Such weakness could be continued by lower economic forecasts that are also likely to be released at tonight’s meeting. The Fed meeting is due at 6pm.

AUD/NZD: Two big data pieces due

Overnight tonight we have both New Zealand GDP and Australian unemployment numbers, both of which have been flagged by their respective central banks as crucial for the ongoing interest rate outlook. NZD GDP, as we laid out in Monday’s ‘What You Need To Know’ for the upcoming week, has the opportunity to undermine some of the confidence surrounding the recent strength of the NZD, especially if consumption within New Zealand falters.

Similarly, in Australia, the notes from the Reserve Bank of Australia that this jobs report is crucial to the ongoing rate outlook means that good news will be bought but bad news will likely be sold heavily as investors rush to bet that the next interest rate move in Australia is lower.

Have a great day.