FX Markets Monthly Outlook – March 2019

The month of February did not spring any surprises. The central bank meetings did not surprise with officials maintaining the official narrative, albeit a bit cautious.

In the UK, the Brexit uncertainty continued into February with still no deal in sight. The lack of any progress should put pressure this month and could lead to a last-minute deal.

Economic reports from the Eurozone continued to disappoint with Germany leading the way. The protests in France and the political spat between France and Italy also marked a dent. The sentiment in the euro remained weak for the most part last month.

In the U.S., President Trump declared a national emergency to secure funds for building the wall near the Mexican border. The effects of the decision are yet to unfold. News reports suggest that this could lead to another bout of uncertainty as the U.S. Congress could face a legal battle.

The month of February also saw the much delayed economic reports coming out from the U.S. The reports such as GDP, retail sales and housing data are not out yet due to the partial government shutdown in December 2018.

The month ahead: March 2019

In March, investors will turn their attention to the United Kingdom as the March 29^th deadline is close. The event is likely to see investors take a cautious stance.

Elsewhere, economic data over the month will cover the final GDP numbers for the fourth quarter of 2019. Data should show that the U.S. economy did slow down in the last quarter of 2018 indeed. The leading economic indicators coming out over the month will also shed more light into the data for February. This will give a fair idea of how the U.S. economy performed during the first two months of the first quarter of 2019.

Among the central bank meetings, the RBNZ, the Swiss National bank, the Fed, the Bank of England, the Bank of Canada and the ECB will be holding their monetary policy meetings this month. Most of the central banks should keep monetary policy unchanged.

Fresh economic forecasts based on recent assessments will show whether the global economy is indeed slowing or if it was only a temporary slowdown.

UK Brexit deadline inches closer

The month of March will likely see heightened activity from the UK. With the Brexit deadline due on 29th of March, investors will be cautious heading into March. So far, no Brexit deal is on the table, and the British Prime Minister’s Brexit deal was no success in the UK parliament.

This raises the stakes with the potential that the UK could either seek an extension to the Brexit deadline or crash out of the EU with no deal in hand. The latter part could have widespread effects especially as far as the UK markets are concerned.

However, some concessions are an option for the UK on the matter of the Brexit issue by the European Union. Still, with the uncertainty looming, the British pound is likely to see a lot of volatility. Economic data from the UK will no doubt be on the back burner this month with the Brexit headlines dominating the newswires.

Will the ECB panic?

The European central bank will be holding its monetary policy meeting this month in March. This is the second meeting this year and right after the governing council decided to end the quantitative easing program in December.

However, the Eurozone’s economy has been slowing consistently since the past few quarters and especially in 2018. While some aspects of the slowdown could be temporary, inflation slipped lower in recent months.

The Eurozone’s core inflation has remained somewhat stable in comparison to the headline inflation rate. Oil prices were one of the reasons for the headline to fall sharply in the past few months. But the recent uptick in crude oil prices could see inflation moderating.

However, questions remain on what the ECB will do this month. There have been concerns from various officials of the governing council about reviving the short term loans to banks, known as the Targeted Long Term Refinancing Operations to inject liquidity into the markets.

The EU commission has also cut its growth forecasts for the year ahead. While earlier, investors were expecting the ECB to look at raising rates towards the end of this year or by the middle of next year, the prospects are also diminishing.