The pound’s recent high volatility has settled as the immediate risks around Brexit receded following the 6 month extension to article 50, agreed last week. From this, the one-month implied volatility has fallen to the lowest levels seen this year. Following a short rally on Friday the pound has hovered around 1.1570 against the euro and 1.3090 against the US dollar. Chancellor of the Exchequer, Philip Hammond, suggested on Friday that it was likely the idea of a second referendum could again be put to Parliament, although heavy resistance can be expected from hard line Brexiteers within the Conservative party.
The week ahead:
With the Brexit delay and Parliament on their Easter break, market data will likely be the driving factor for currency movements. The key release for the week will be labour market data due on Tuesday at 9.30 BST. Average earning is due to see an increase from 3.4% to 3.5%, while unemployment is forecast to hold at 3.9%. The Bank of England have signalled that if a trend of robust wage rises continues, we are likely to see an interest rate rise this year, which would be good for the pound. The other main release for the week will be retail sales, forecast to show -0.3% from 0.4% when released at 9.30 BST on Thursday.
On Tuesday at 10.00 BST, the ZEW economic sentiment for Germany will be released. Forecast to show an increase from -3.6 to 1.0, markets will be watching to see if Germany's recent poor economic performance has come to an end. As Europe’s largest economy, investors watch Germany closely as they usually set the trend for the Eurozone. On Thursday at 9.00 BST, the first set of PMI’s for April will be released. Services are forecast to fall from 53.3 to 53.1, while manufacturing is forecast to rise from 47.5 to 48.1.
From the US, the main data releases will be due out on Thursday at 1.30 BST. Retail sales is due to show an increase from -0.2% to 0.9% while core retail is due at 0.7% from -0.4%. Retail sales are key in assessing the health within the economy, strong data should give strength to the dollar. The Philly Fed manufacturing index will also be released on Thursday, forecast for a slight decline from 13.7 to 11.2. Although priced into the market, a better than forecast result could lend further support to the dollar.