Brexit related economic storm clouds grow

Today's news headlines:

  • 'UK firms report weakest growth since April 2013: CBI’. The news underlines how more companies aren’t investing, with business decisions becoming increasingly problematic as Brexit woes continue to drag on the economy. (Reuters)
  • 'Hammond set for windfall in public finances in spring statement’. The Chancellor of the Exchequer announces his Spring budget statement next week, a day after MPs vote again on Brexit. In the event that the current deal can be agreed upon, a significant boost to public spending will be announced. Such confidence in the economic outlook has the potential to lift Sterling further. (Financial Times)
  • 'US, China close in on trade deal’. The deal isn’t concluded yet, and there’s concern that either side could be seen as giving up too much, but following the breakdown of talks with North Korea, the US President is reportedly under pressure to deliver a result. (Wall Street Journal)
  • 'Trump says Dollar too strong in renewed criticism of Powell’. The weekend’s narrative was sufficient to see the Dollar slide a little in early Asian trade, with President Trump flagging quantitative tightening as squeezing inflation out of the US economy. (Bloomberg)

UK economy stalling 

Data released from the Confederation of British Industry (CBI) over the weekend showed its monthly growth index for February had hit its lowest level in almost six years. Again, this indicates that businesses aren’t investing amid Brexit uncertainty. This theme is likely to be repeated with the release of the influential UK Purchasing Managers’ Index (PMI) figures over the coming days. Any indication of contraction—a reading below 50.0—could leave Sterling under pressure.

Brexit dividend ahead?

Talk of a boost to public sector spending after Brexit has been side-lined, in part owing to the potential extra costs associated with a no-deal scenario. However, MPs may have an added incentive to approve the standing deal on the basis that the Chancellor of the Exchequer could confirm how any Brexit dividend would be spent next week. In the wake of record tax receipts in January, this would convey an important message of confidence over the health of the UK economy after leaving the European Union, providing support for the Pound in the medium-term. 

GBP/USD

Despite some volatility over the weekend break, the Dollar has marginally gained against the Pound. This week’s UK PMI data has the potential to heap further pressure on Sterling if there are any suggestions of economic contraction.

EUR/USD

The Euro has continued to trade sideways despite disappointing US economic data on Friday and Donald Trump’s latest veiled attack on Federal Reserve Chief Jerome Powell over the weekend. Expectations over the European Central Bank’s (ECB) meeting later this week will likely continue to drag on the Euro.

GBP/EUR

The Pound is finding renewed support in early trade despite the weekend’s disappointing economic news. Optimism over Brexit may be helping here, along with the possibility of news of stimulus measures from the ECB later in the week.