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February

Sterling stronger on possible Brexit delay

Published: Tuesday 26 February 2019

  • Stream of US data may weaken USD
  • New Zealand trade deficit forecast to narrow
By David Johnson

The EU was all over the market news yesterday. Theresa May suggested that the UK may seek an extension to the negotiating period if a deal with the EU can’t be agreed by 13th March and President Trump urged the EU to be reasonable on trade talks or, in his inimitable style he claimed the US would “tariff the hell out of you”.
 
The potential for a delay to Brexit actually strengthened the Pound which gained nearly a cent against the Euro and a similar amount against the US Dollar. The fact that opposition leader Jeremy Corbyn esquire has finally caved in to his back benchers to support a 2nd referendum seems to have been ignored. Perhaps traders believe, as I do, that they should be careful what they wish for. The EU’s intransigence and, in my opinion, rather patronising tone, may well have hardened the Brexit support. Oddly enough, Bank of England (BoE) Governor Carney, when he spoke yesterday morning, didn’t talk monetary policy but did confirm a long term deal with the US derivatives trades which will support London’s financial position in the world long after Brexit. That may be a minor story as far as the press is concerned but it is a very positive one for UK PLC.
 
Today and tomorrow are crucial days for the UK economy. The Prime Minister will speak about her latest developments on EU negotiations today, BoE Governor Carney will deliver the inflation report to parliament today and the House of Commons will vote on the Prime Minister’s latest plan tomorrow. We will also get some housing market data to liven things up. Sterling is remarkably strong compared to the last two years but is still weak in a historical context, so there is room for plenty of volatility.
 
US data includes building permits, housing starts, consumer confidence and a testimony to congress from the Federal Chairman, Jerome Powell. So enough to keep everyone busy then. The forecasts are for slightly weaker data almost across the board and there are a lot of commentators trying to work out whether this slowdown in US data is a prelude to a recession. To be fair, some in the markets have predicted 15 of the last 3 recessions, so pinches of salt may be required when reading these doom and gloom reports.
 
Overnight tonight we will get the New Zealand trade balance figure. A slight narrowing of the trade deficit is forecast, something that would strengthen the NZ Dollar to some degree. With the GBPNZD rate poking above the 1.90 level again, this may be a good level to cover some of your requirements if you are a risk averse NZD buyer.
 
And I loved the story of the mother on a flight from Seoul to San Francisco who was travelling with her mother and her 4 month old baby. She handed out 200 goodie bags to the other passengers with sweets and ear plugs just in case her baby cried through the flight. They were accompanied by a note from the baby. In the end, the baby was as good as gold apparently but I am sure everyone appreciated the gesture.  My memories of travelling with small children on flights is that everyone tried to hide their dread when you sat next to them and almost never spoke but were very complimentary when we got off….if there wasn’t too much crying or whingeing.

In Flight 

The passengers of the very first fully automated aeroplane are very excited as the jet taxies along to its runway. As they await the take off and the engines starts to build in power and volume, a voice comes over the address system. “Good morning ladies and gentlemen. Welcome to flight 3476 to Sydney Australia. This is a non-stop flight and we will be in the air for 18 hours. This is also the inaugural flight of Auto Airlines, the first fully automated airline. This Boeing 6007 jet is the very latest, state of the art fully automated jetliner with no human intervention in the flight process. “
 
The engine roar reaches a crescendo as the brakes are released and the jet starts to gather pace rotating to gain height. Just then, the voice is heard again, “As the take-off procedures are automated, I can confirm that, with two backup systems for every operation nothing on this aircraft can fail. Faults are absolutely impossible..inposs…imposs….impocedurealimp…im…im….im..im…im.”

Today's Major Economic Releases

Market BST Data/Event Previous Expected
GBP 10:00 UK: Inflation Report Hearings    
USD 13:30 US: Building Permits 1.32m 1.29m
USD 13:30 US: Housing Starts 1.26m 1.25m
USD 15:00 US: Conference Board Consumer Confidence 120.2 124.8
USD 15:00 US: Richmond Manufacturing Index -2 6
NZD 21:45 New Zealand: Trade Balance 264m -300m

For more information, infographics and the latest currency insights, visit www.halofinancial.com/news
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