Quiet start to the week unlikely to last

​​​​​Today's news headlines:

  • 'UK PM May to hold Brexit talks with EU's Juncker; urges party unity’. No specific date beyond ‘this week’ has been given for the talks, but in a potentially more critical development, the UK Attorney General will set out what he believes is necessary to remove the risk of the UK becoming stuck in the Irish backstop indefinitely. This could, in turn, help influence pro-Brexit Conservative MPs. (Reuters)
  • 'ECB eyes data as slowdown proves “significant”, Villeroy says’. One of the European Central Bank’s governing council members has warned that if there are no signs of an economic rebound in the Eurozone, then a change of tactics will be necessary to try and stimulate growth. This could include a combination of lower interest rates, more liquidity for banks and discount long-term loans. (Bloomberg)
  • 'Trump receives report on U.S. security threat of auto imports’. The report was delivered last night, but there are no clues as to its findings. This could lead to fresh import tariffs being applied to cars, including the significant vehicle exports from Europe to the US, something which could weigh on the Euro. However, because of the complex global supply chain agreements that underpin the sector, US built vehicles could become more expensive, too. (Bloomberg)

Macro overview

There’s not much in the way of fundamental economic releases scheduled for today, in part owing to the US observing the annual Presidents’ Day holiday. Protests have been threatened in response to Donald Trump’s declaration of a National Emergency to secure border wall funding. In isolation, this is unlikely to hit the Greenback, but may contribute to more restrained trading in thinner bank holiday markets.

Brexit

The UK Brexit Secretary meets Michel Barnier in Brussels again today to discuss Brexit, although this may be little more than procedural. The key point in the near-term could well be the UK Attorney General laying out his vision for preventing the country from getting trapped in the Irish border backstop. An accommodating tone here may be sufficient to win over pro-Brexit Conservative MPs, in turn, helping meet the March 29th deadline for Brexit. However, that would also remove the prospect of a delay or even an annulment of Article 50. Such a move may end up being negative for the Pound.

GBP/USD

Better-than-expected UK home price data is providing some minor support for the Pound. News flow surrounding Brexit developments continue to be a larger catalyst for Pound movement, particularly with the deadline approaching.

EUR/USD

Some downbeat US economic data combined with optimism over trade talks helped deliver upside for the Euro against the Dollar late on Friday, but the pair still printed its worst weekly close in almost 20 months. However, positivity over trade could sour amid suggestions that punitive import tariffs will be levied on European cars shipped to the US.

GBP/EUR

The Pound gained ground over the Euro at the end of last week amid a worsening economic outlook for the Eurozone. However, upside from here could be limited given Brexit uncertainty and the idea that any hopes of a delay could soon vanish.