The British pound has started the week with gains. In North American trade, GBP/USD is trading at 1.3899, up 0.35% on the day. In economic news, there are no British indicators. The US releases the federal budget, with an estimate of a $222.3 billion deficit. On Tuesday, the UK releases the annual budget. The US will release CPI reports.
The UK ended the week on a disappointing note, as Manufacturing Production slowed to 0.1% in February, down from 0.3% a month earlier. This reading was shy of the estimate of 0.3% and marked a 4-month low. In the US, employment numbers were a mix on Friday. Wage growth dropped to 0.1% in February, down from 0.3% a month earlier. This missed the estimate of 0.2%, and marked the lowest gain in four months. The news was much better from nonfarm payrolls, which soared to 313 thousand, crushing the estimate of 205 thousand. The mixed numbers have eased concerns about the Fed raising rates four times in 2018. At the same time, a rate hike is very likely at next week’s Fed meeting, with the CME Group pegging the odds of a hike at 86%.
Are Britain and the European Union heading towards a showdown? Last week, Donald Tusk, president of the European Council, advised Prime Minister May to “pink’ her red lines on Brexit, if Britain wants to maintain a close economic relationship with the bloc. May has insisted that there will be no customs union, and the European Court of Justice will have no jurisdiction over the UK. May set out these positions after the EU published its draft negotiating guidelines for Brexit, and the guidelines warned of “negative economic consequences” if Britain does not soften its position. Tusk added that he does not want to build a wall with Britain, and the EU could offer Britain a free trade agreement, with zero tariffs. At the same time, Tusk warned that Brexit will make trade between the two sides “complicated and costly” and the EU would not allow Britain to cherry pick in any future trade arrangement. EU members are expected to sign off on the negotiating guidelines at a summit in late March, which could trigger a nasty response from the May government.
