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Protecting the services industry

GBP - British Pound

The Confederation of British Industry urged Prime Minister Boris Johnson this morning to secure a post-Brexit deal that will not leave out service industries, such as finance, which based on discussions between London and Brussels currently, is a major concern for employers. Britain and the EU are expected to begin talks for a trade deal next month, leaving little time before a post-Brexit standstill period expires on Dec. 31. Most economists polled by Reuters this month thought the most likely outcome would be a goods-only deal

Carolyn Fairbairn, the CBI’s director-general, said British companies backed many of the government’s objectives for the negotiations, such as securing zero trade tariffs and allowing free flows of data. “In other areas, how the government strikes the balance between access and control is less clear,” she said. “All efforts must be made in these talks to save exporters time and money, avoiding new paperwork, costs and delays.” The CBI said it accepted that its once favoured scenario of Britain remaining in the EU’s customs union was now dead, and that London and Brussels are far apart on key issues, chief among them Britain’s insistence that it must be free to set its own rules for business while the EU wants a so-called level playing field on issues such as the environment and state aid. The CBI said it agreed with the government that Britain had to be able to seize new opportunities by setting regulations for emerging technologies in areas such as artificial intelligence, digital payments and quantum computing.

Sterling rose against the dollar and euro on Friday after UK purchasing managers indexes showed British factories posted the fastest rise in output for 10 months. The ‘flash’ early readings of the IHS Markit/CIPS UK Purchasing Managers’ Index (PMI) showed the expansion of Britain’s vast services sector slowed slightly this month, but this was cancelled out by an unexpected upturn in manufacturing. Sterling hit the day’s high of $1.2928 against a broadly weaker dollar, up nearly 0.4%. Against the euro, the pound climbed back to the session’s high of 1.1980.

According to the Office for National Statistics in the U.K., inflation in January rose to a six-month high as energy and house prices rose. Inflation came in at 1.8% last month, up from 1.3% in December, which might provide another reason to keep cut interest rates on hold in the near-term. The Bank of England's next meeting is scheduled for March 26th.

Key Movers

Minutes from January's policy meeting showed that ECB policymakers were relatively upbeat on the Eurozone’s growth outlook, as incoming data suggested the worst could be over for the bloc’s economy. However, concerns remain as the real economy remained weak and the improvement in hard data had been negligible. Last quarter, both Italy and France's economies have contracted, while Germany remained stagnant. German ZEW data earlier in the month also reported a sharp drop, however PMI data remained robust and better than expected. This eased concerns around the effect of the coronavirus on the Eurozone economy for now, however, the Italian authorities have had to improse strict quarantines in the northern part of the country after the infection count rose above 150, and the Venice carnival has now been cancelled.

After The US dollar outperformed G10 currencies for the most part of last week, the currency fell across the board on Friday after a survey of purchasing managers showed US business activity in the manufacturing and services sectors stalled in February and as investors fretted over the fast-spreading coronavirus. The IHS Markit flash services sector Purchasing Managers’ Index dropped to 49.4 this month, the lowest since October 2013 and signaling that a sector accounting for roughly two-thirds of the U.S. economy was in contraction for the first time since 2016. The manufacturing sector barely escaped a slip into contraction, with a flash reading of 50.8, the lowest since August.

The World Health Organization is now worried about the growing number of Coronavirus cases that have no clear link to the epicentre of the outbreak in China. Italy, South Korea and Iran posted sharp rises in infections over the weekend. South Korea now has more than 760 cases, Italy more than 150 and Iran 43 cases. “The market reaction to the coronavirus appears to be evolving, beginning to differentiate the currencies vulnerable to the virus from the rest,” Barclays analysts said in a note. “US dollar assets provide relative attractiveness,” they wrote. “In fact, our economists forecast no impact on U.S. growth from Covid-19, with relatively few domestic incidents and a low dependency on China’s economy.”

New U.S Democratic nominee Michael Bloomberg came under a sustained attack from all sides last Wednesday in Las Vegas, as his rivals tore into the billionaire’s record on women and race and accused him of trying to buy the election in the most combative presidential debate to date. Elizabeth Warren led the charge by saying ‘I’d like to talk about who we are running against; a billionaire who calls women fat broads and horse-faced lesbians. I am talking about Mayor Bloomberg’.

Expected Ranges

GBP/USD: 1.2880 - 1.3010 ▲

GBP/EUR: 1.1870 - 1.2020 ▲

EUR/USD: 1.0760 - 1.0850 ▼

GBP/CAD: 1.7110 - 1.7220 ▲

GBP/AUD: 1.9510 - 1.9650 ▲