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February in the Markets

Brexit continues to be the major story for the pound and the euro. Mid-February both currencies dipped low but have recovered to new highs at the end of the month supported by increasing expectations that a no-deal Brexit would be ruled out. Oil and Precious metals have both declined, and the risk appetite around Chinese PMI manufacturing has reinforced global growth doubts.

To give you an overview of the month we have brought together articles from the sector:

Bank of England Reports Published in February 2019

Working Paper – Currency Mispricing and Dealer Balance Sheets – Read the report

Using a unique data set on contract-level foreign exchange derivatives with disclosed counterparty identities, this paper finds that dealers with a higher leverage ratio, demand an additional premium from their clients for synthetic dollar funding.

Visual Summary – The Inflation Report February 2019 – Read the report

UK growth has slowed, inflation has fallen back close to the Bank of England’s 2% target, future interest rate raises should be gradual and limited.

Working Paper – Brexit and Uncertainty: Insights from the Decision Maker Panel – Read the transcript

A new firm-level survey, the Decision Maker Panel (DMP), was created to investigate uncertainty around Brexit.

The 3 key findings are: 1. Brexit was one of the top 3 sources of uncertainty for c40% of UK businesses in the 2 years after the vote in June 2016. This increased further in Autumn 2018. 2. Uncertainty has been higher in industries that are more dependent on trade with the EU and on EU migrant labour. 3. The uncertainties around Brexit have been primarily about the impact on businesses over the longer term rather than shorter term.

Investor Optimism Crashed by US Data

From: Daily Forex

Optimism about a trade deal between the US and China has been pushing markets forward all week, but weak data out of the US on Thursday (21st Feb) countered the excitement by showing a slowing in the US economy.

Factory activity in the mid-Atlantic region shrank for the first time in February since May 2016, and home sales fell to a 3-year low in January. Coupled with weak data in January that showed a drop in retail sales and a downward trend in manufacturing output, traders are wondering if the US economy is as strong as it was believed to be. All three Wall Street benchmarks closed lower on Thursday (21st Feb) causing Asian indexes to search for direction on Friday (22nd Feb).

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Brexit Hopes Rise for FX Traders

From: Daily Forex

GBP is moving off earlier higher movements against the US Dollar after Philip Hammond, Chancellor of the Exchequer, spoke about constructive discussions with EU officials. That helped to improve sentiment and gave rise to hopes that a Brexit proposal could be on the table which MPs might vote for. The revised deal could be presented to Parliament as soon as next week with a vote coming in soon after.

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Japan Trade Deal Won’t be Ready by Brexit Deadline

From: The BBC

The UK won’t be able to roll over an EU trade deal with Japan in time for a no-deal Brexit, Liam Fox (Trade Secretary) has said. It was one of the most important EU trade deals the UK hoped to replicate ahead of the 29 March withdrawal date.

The trade department also said it would not be able to roll over the EU’s customs union deal with Turkey on time.

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Euro Dips on Downbeat German Business Morale

From: Reuters

Analysts assessing the euro’s prospects are concentrating on whether a slowdown in European growth is likely to be long term. A survey on Friday (22nd Feb) showed business morale fell in February for a 6th straight month in Germany, the mainstay of the European economy.

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UK Employment Hits Another Record High

From: The BBC

The latest Office for National Statistics figures show that the number of people in work in the UK has reached record 32.6 million employed between October and December.

Unemployment was little-changed in the three-month period at 1.36 million and the jobless rate, remaining at 4%, is at its lowest since early 1975.

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FX Rates in February

GBP/EUR

Feb GBP vs EUR Currency Fluctuations

Feb High: 1.1695
Feb Low: 1.1350
Feb End: 1.1695

GBP/USD

Feb GBP vs USD Currency Fluctuations

Feb High: 1.3301
Feb Low: 1.2798
Feb End: 1.3301

EUR/USD

Feb EUR vs USD Currency Fluctuations

Feb High: 1.1442
Feb Low: 1.1275
Feb End: 1.1275