23/02/2018 - Gains Limited on GBP Following EU Message

GBP

Sterling experienced limited gains yesterday after the EU made it made it clear that it would only consent to a post-Brexit deal under which Britain would stick to the bloc’s rules in all areas and not only in some. This comes before the meeting between EU leaders on March 22-23 when it will become clear whether or not senior ministers have agreed to a transition period following the UK’s departure from the bloc in March 2019.

The pound was also hit after UK GDP for Q4 posted a lower than expected reading of 0.4%. Analysts had originally expected growth of 0.5%. The report published by the ONS found that this was predominantly due to a stronger pound which has made exporting less attractive for businesses in the UK. Analysts also blamed the weak data on subdued private sector activity and slack in the mining and energy sectors.

EUR

The euro realised minor losses yesterday after dovish ECB meeting minutes for last month reflected council members view that it was too soon to change their communication stance to signal a shift in policy.

Although this does not rule out discussions over tweaking the bank’s stance in the near future, policymakers concluded that communication policy will evolve to avoid abrupt, disorderly adjustments to its ultra-loose monetary policy that has now been in place for several years. They also agreed to keep a close monitor on the single currency’s firming.

USD

The dollar continued its rally yesterday after minutes from the Fed’s most recent meeting in January showed that policymakers remain positive over the outlook for U.S. inflation.

The upbeat tone in the minutes cemented expectations that the U.S. central bank will raise interest rates under its new chair Jerome Powell as early as next month and on at least another two occasions after that.

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