Good morning,

USD: Trade hopes dent dollar

While it may be President’s Day in the United States and therefore a bank holiday, political news from the States continues to set the tone for the world’s currency markets. Once again, hope, expectation and, dare I say it, the dream that the US and China get together and agree a deal on trade is propelling equities and riskier currencies higher this morning.

No announcement has been made and conversations between Chinese and US negotiators will continue this week in Washington. Donald Trump hinted yesterday once again that the March 1st deadline could be extended and this remains our base case at the moment.

Despite it being a bank holiday, the US government is open following Trump’s decision to sign a bill that avoids a new shutdown. Trump also announced a ‘national emergency’ on immigration and the border wall and will attempt to bypass Congress to obtain the funding that he wants for the wall between Mexico and the US.

In the absence of economic data, and this week’s data calendar is very quiet, then politics will largely take over as the prime influence for the USD.

EUR: More weakness to come

The European single currency has started the year badly and the weakness of both the global and European economies hasn’t helped matters. The slowdown of the Eurozone economy was dubbed as ‘significant’ by an ECB member over the weekend and next month’s European Central Bank meeting could easily be enough to take any remaining optimism out of the euro, damaging the expectation that interest rates are going to increase at all this year and that, in fact, additional stimulus may be necessary.

The European Central Bank may have actually missed its chance to raise interest rates given the concerns over an extended global downturn amid an antagonistic trade environment.

GBP: Still playing the game

We have used a basketball analogy for Brexit since the early days of the negotiation. We think that, much like a game of basketball, the past two years of the Article 50 period will have been back and forth, and point scoring on either side. The most exciting part of the basketball is always the last minute when both teams go for the win and the pain or ecstasy of a buzzer-beater settles the game. We are not in that last minute yet and hence why the news flow around new plans has slowed to a crawl.

The last minute panic and freneticism probably won’t begin until we have maybe a week left until the deadline on March 29th. Until then we have to think that sterling will remain incredibly volatile and any darts higher will be sold heavily as no-deal fear concerns increase.

Have a great day.