Market News & Insights
20 February 2018

Sterling Brushes Off Brexit

Monday was a quiet start to the week as the US celebrated its second bank holiday of the year; President’s Day. All major currencies traded comfortably within a 1% range as no data or news was released. Today however, is expected to be more impactful as the ZEW (Centre for European Economic Research) will release the economic sentiment for the next six months for Germany, as well as the current market conditions this morning. The main focus is likely to be on the economic sentiment, this is expected to drop to 16.0 this month after a better than expected figure of 20.4 in January. While the current conditions figure is also like to come out slightly weaker at 93.9 compared to 95.2 recorded last month. A positive surprise may add fresh support for what has been an excellent start to the year for the single currency and we are likely to see a push back up to the 1.24+ level.

Sterling will be back in focus later on in the week but the pressing focus will still be on Brexit negotiations. The UK has privately discussed the option of developing a contingency plan if anything goes wrong with current negotiations but no notes have been released on the conclusions of the meeting. Although reports like this never come at a good time, the UK is also dealing with the tough comments from Guy Verhofstadt – the EU Parliament’s Chief Brexit coordinator – who admitted that there will not be a finalised deal in place by the time the UK leaves in March 2019. This report is damning for the UK but has not yet trickled into the markets but there is a danger that this could be the start of more Brexit negativity and ultimately a sell off for GBP.

EUR/USD has been on an uptrend since November of last year, where it looked to have 1.26 set in it sights. This week however, the upward trend looks to be taking a breather, with 1.2330 providing support. The dollar has looked to have been oversold in recent weeks as traders sense other major central bankers are looking at tightening their Fiscal Policy. We have a similar uptrend in the GBPUSD cross where again traders are happy to overlook Brexit concerns here and we are backing trading at Pre-Brexit levels, 1.39 offers firm support here. EURGBP had a very quiet day yesterday, trading in a roughly 15bps range.