GBP

Sterling fell early on in Wednesdays session after UK inflation fell to a two-year low in January, dragged lower by falling energy bills and fuel. The Office for National Statistics said the Consumer Prices Index (CPI) was 1.8% last month, down from 2.1%. The drop in inflation is due mainly to cheaper gas, electricity and petrol, partly offset by rising ferry ticket prices and air fares falling more slowly than this time last year.

Brexit was also in the headlines after Theresa May played down reports that she could force MPs to choose between backing her deal or accepting a delay to EU withdrawal agreement. May went onto say ‘’we triggered Article 50 that had a two year limit, that ends on the 29th March and it is very clear that the Government position is still the same’’. The overriding feeling from May’s camp is that she will do everything possible to ensure she is able to deliver Brexit on 29th March with a deal.

May said she will lift the requirement for a 21 day period before any vote to approve international treaty, which means she could delay the final Brexit vote on her deal days before the U.K. is scheduled to leave the EU. May still has intentions of holding a vote on a deal as soon as possible but has been accused by Labour of ‘running down the clock’. The Labour Party believe that May is trying to ‘blackmail’ MPs into accepting her deal. Labour believe she is trying to prolong a vote being placed on her deal, so in the end MPs can accept the deal just days before the exit date to avoid a no deal Brexit.

EU council President Donald Tusk is still waiting for a realistic proposal regarding the current Brexit deal from May. He was quoted saying ‘no news is good news’ as he patiently awaits what May will bring to the table. May has told her critics that accepting her deal will end the uncertainty among consumers and businesses in the current economy, thus causing business confidence and consumer confidence to rise again.

Lastly MPs on Thursday are set to vote on the next steps in the Brexit process. A series of new amendments will be tabled including taking a no deal scenario of the table.

USD

The dollar rallied during yesterdays session after figures showed sustained strength in core U.S. inflation. While the headline consumer pricing index logged its weakest pace in 1-1/2-years in January, traders focused on the core price gauge, which was up for the third straight month, giving the dollar some impetus. Dollar was hit earlier this year by the Federal Reserve’ shift to a cautious policy stance. The latest data however suggests the central bank will need to stay vigilant on pricing pressures even as it adjusts to heightened growth risks.

EUR

The Euro weakened on Wednesday off the back of a report which showed industrial production fell among member states at its fastest pace since the financial crisis. The fall in industrial production fell by 0.9%, more than twice the 0.4% forecast. The reason behind the fall was driven by decline in output of capital goods used for investment and non-durable consumer goods for production. The fall in industrial production and the decline in the output of capital goods underline the trend of slowing economic growth in the euro zone where the European Commission expects growth to decelerate to 1.3 percent this year from 1.9% in 2018.

Key Announcements

13:30 – USD: Core retail sales m/m – forecast 0.0% from previous 0.2%
13:30 – USD: PPI m/m – forecast 0.1% from previous -0.2%
13:30 – USD: Retail sales m/m – forecast 0.1% from previous 0.2%