Pound off its highs

Sterling strengthened against both the euro and the dollar last week, as the UK prime minister pledged to give MPs the opportunity to avoid a no deal Brexit at the end of this month, though it ended off its highs and kicks off this morning trading at about 86p and $1.3250 respectively. The dollar is holding its own at the start of this week even as Donald Trump had a moan over the weekend about not wanting it to be “too strong”, with the US currency trading at around $1.1350 against the euro

There was a notable rise in bond yields in the core markets last week – of the order of 10-15bps in the case of 10-year yields – led by UK bonds which sold off sharply as the chances of a no deal Brexit in the short-term receded.  Yields are nudging higher this morning on reports that US tariffs on China may be lifted as part of any trade deal, which is also providing some support for equity markets

The ECB meets this Thursday and is almost certain to revise down its forecast for GDP growth this year, and perhaps for 2020 as well, while it may also lower a little its projections for inflation, which has been weaker than the ECB expected over the first couple of months of this year. It may also amend its forward guidance on interest rates to indicate that a first rate hike is likely to be delayed.

On the data front, the key release is the employment report in the US at the end of the week (Friday), with the consensus expecting solid job gains of around 185,000 in the month of February and a decline in the unemployment rate to 3.9%, as well as an uptick in annual rate of increase in earnings to 3.3%. Other data due include services PMIs in the main economies tomorrow (Tuesday)