Data from both the Eurozone and the US yesterday highlighted the reality of the global economic slowdown that is now very much underway. US Durable Goods Orders for December came in short of expectations, despite optimism that aircraft orders would bolster the figure.
Manufacturing activity in the Eurozone also slumped, order books diminished, and stocks of completed products rose, providing further evidence of a gloomy outlook. This all points to the need for central bank intervention, with the first to yield likely to see their currency tumble.
However, one positive is the safe-haven allure of the US Dollar, which may have the potential to give the Greenback the edge in the medium-term.
There are conflicting signals as to whether Theresa May is making any significant progress with Brussels to allow a new, meaningful vote in the next few days. Regardless, February 27th remains the key date to watch as this could still see the Brexit process taken out the hands of the government, with the Pound likely to be exceptionally volatile during the day.
While further resignations by MPs to join the new Independent Group remain a possibility, this shouldn’t in itself increase the chance of a no-deal Brexit, which limits downside for the Pound. A snap general election with the traditional political parties in disarray is the bigger risk. The accompanying period of uncertainty could be damaging for Sterling.
The Pound has been trading sideways against the Dollar since Tuesday’s rally off the back of news that the Malthouse compromise was to be abandoned. Optimism over fresh revisions to any deal with Brussels would have the potential to provide further support.
The pair is again trading largely sideways with both the Euro and US Dollar facing headwinds off the back of sluggish economic data. Any shortfall in Eurozone inflation data today could leave the Euro pressured ahead of the weekend break.
The Pound continues to trade sideways against the Euro near the top of a seven-cent trading range. As above, a weak Eurozone inflation print could provide some upside for Sterling in the short-term, but it increasingly looks as if February 27th could be the next flashpoint for Sterling.