Currency markets are currently experiencing low volatility with most if not all G10 central banks on hold for the time being and uncertainty lingering as to whether the US and China can reach a permanent deal on trade and other matters including intellectual property. The Dollar continues to depreciate, but at a glacial pace, and the Euro trade-weighted index has oscillated in a narrow 0.7% range in the past month.
Sterling is somewhat bucking this trend, having today appreciated to its highest level against the Dollar since September (1.332) and against the Euro since May 2017 (1.17). The currency’s rapid climb is seemingly being driven by market expectations that the UK is very unlikely to exit the EU without a deal and that instead Prime Minister May will be forced to seek a delay to the UK’s departure from the EU beyond 29th March, potentially to allow sufficient time for a second referendum to be held.
The slew of macro data releases due in the next 48 hours, including US Q4 GDP figures, PCE inflation and ISM manufacturing PMI and preliminary numbers for Eurozone CPI-inflation in February, could temporarily inject a bit of life in currency markets. But ultimately FX markets currently appear to be in a wait-and-see pattern which may require a combination of significant data surprises, monetary policy changes and unexpected events to be broken.
