Sterling slides to two-month low as Brexit pressures mount
Sterling sank back below the 1.30 mark against the US Dollar on Tuesday, falling to its weakest position in two months on a stronger greenback and renewed concerns over Brexit.
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rexit has taken somewhat of a backseat in the past couple of weeks after Theresa May struck a deal with the EU to delay the UK’s exit deadline until the end of October. The return of Parliament following their Easter recess did, however, thrust the topic back into the headlines yesterday. Prime Minister May stated that cross party talks between the Tories and Labour were serious, although ‘difficult’ in some areas.

The Pound had already lost almost half a percent of its value prior to her comments as some strong US data fuelled a Dollar rally across the board. Investors also began ramping up bets that Theresa May’s position as PM could be under threat after an FT report claimed that another vote on her withdrawal agreement could be held as soon as next week. Another defeat here would compound losses for the Pound and heighten calls for the Prime Minister to step down.

US Dollar soars on hopes of solid GDP numbers



As mentioned, the US Dollar put in a very strong performance on Tuesday, rallying by around 0.5% versus the Euro during the course of the day.

Some pretty solid macroeconomic data out of the world’s largest economy has raised optimism that Friday’s preliminary first quarter growth number for the US could come in much stronger than initially feared. US new home sales rose to a sixteen month high in March according to data released yesterday, while last week’s retail sales numbers were among the strongest month-on-month since the financial crisis. The market is now eyeing a pretty solid growth number around the 1.8% annualised level. While much slower than recorded throughout much of last year, this would be considerably better than the market had feared a matter of a few weeks ago.

Figure 1: US New Home Sales (2014 - 2019)

Source: Thomson Reuters Datastream Date: 24/04/2019

German business confidence falls again



Another set of soft economic news out of the Eurozone heaped additional pressure on the common currency this morning, while raising additional concerns over a possible slowdown in the bloc’s economy in 2019.

The monthly German sentiment indices from IFO all fell short of expectations. The business climate index declined to 99.2 this month after investors had eyed a reading around the 99.9 mark, remaining around its lowest level since the beginning of 2016. Economic data has remained disappointing in the bloc for some time and so long as this continues we think that the Euro is unlikely to post any meaningful gains from current levels.

Data is relatively light in the Eurozone for the rest of the week, meaning that the Euro is likely to be driven largely by events elsewhere.
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