A day of downgrades

The euro and sterling both came under pressure yesterday after the European Commission and the Bank of England both downgraded sharply their forecasts for growth in the Euro area and the UK respectively. The single currency slid to around $1.1325 against the dollar before recovering, but it is heading lower again this morning. The pound fell below $1.29 against the dollar for a time before also rebounding, but it too is heading southwards again this morning. Amidst all of this, the euro-sterling rate is largely unchanged at around 87.5p

Bond yields in the core markets fell as expectations for central bank interest rate hikes get scaled back amid the weaker prospects for growth. German 10-year yields ended the day down about 5bps at 0.10%, their lowest level since late 2016, while equivalent UK and US yields fell to around 1.15% and 2.65% respectively

The European Commission lowered its forecast for Euro area GDP growth in 2019 to 1.3% from 1.9% as recently as November – the ECB, which in December forecast growth of 1.7% this year, is likely to follow suit when it publishes updated forecasts in March – while the Bank of England now expects UK growth of 1.2%, revised down from a projected 1.7% back in November

Prime Minister May and European Commission President Juncker agreed to disagree on re-opening  the Withdrawal Agreement in Brussels yesterday, although they said negotiations on a way forward will take place over the next few weeks and that they will meet again before the end of this month

It’s quiet on the data front today with little of note scheduled for release