The pound strengthened yesterday as investors added bets against a struggling dollar however gains were limited by worries over the current lack of progress being made in the Brexit negotiations.
Friday saw sluggish wage growth in the US offset positive jobs data which in turn has prompted investors to reconsider whether the Federal Reserve will tighten policy more aggressively than expected this year. This has increased investors’ appetite for sterling which has seen its net long positions slashed to their lowest since early December.
This has mainly been due to increasing uncertainty over whether the UK and the EU will strike a transition deal before the March 22-23 summit. There are fears that a no deal scenario may scupper the Bank of England’s plans to tighten policy by 25 basis points later this year as the it's current forecasts are based on a smooth break from the bloc. Markets are currently pricing in the probability of a rate hike by May at 70%.
Traders will also be keeping a close watch on UK Chancellor Philip Hammond who later today is set to announce Britain’s smallest fiscal deficit since 2002. However many analysts are expecting the finance minister to resist calls to boost public spending in the short run.
11:30 – GBP: Annual Budget Release
12:30 – USD: CPI m/m; Forecast at 0.2% against a previous of 0.5%
12:30-USD: Core CPI m/m; Forecast at 0.2% against a previous of 0.3%