Optimism that the worst case scenario had been ruled out took Cable to its highest levels since July of last year. European currencies joined the Pound in celebration, as the ensuing worldwide rally in risky assets put a bid on all G10 currencies save the traditional safe-havens, the Japanese Yen and the Swiss Franc.

This week, the March meeting of the Federal Reserve on Wednesday will shift traders attention back to monetary policy. British politics will still move markets, as Theresa May puts her deal with the EU to a third vote in Parliament on Tuesday. Finally, the release of the flash PMIs of business activity in the Eurozone on Friday will give us a critical read on the true state of the economy there.

Major currencies in detail

GBP

All Brexit, all the time. The three key votes last week went as we expected: no to May’s deal, no to a no-deal Brexit, and yes to an extension. Theresa May now goes for a third try on Tuesday. We expect it to be a closer vote than last week’s, but still a rejection, as the gap in support is too large to bridge. If we are wrong and the deal passes, we can expect a significant Sterling rally on top of last week’s rise, however.

The focus will now be on the EU summit over the weekend, which is expected to deal with a request for a formal delay of the 29th March deadline. The longer the delay, the further the Pound will rally, in our view, as markets will start pricing in the possibility of a second referendum.

EUR

Last week, industrial production data for the month of January generally surprised to the upside in the Eurozone. We note that in spite of the gloomy commentary on the Eurozone economy, the tone of actual economic releases has taken a clear turn for the better over the past couple of weeks.

Our positive view will be tested on Friday, when the key PMIs of business activity are released. We expect a surprise to the upside, particularly in manufacturing. This could well ignite a modest Euro rally back towards the middle of its range of the past few months, near 1.15.

USD

Focus for this week will, of course, be on the key Federal Reserve meeting on Tuesday and Wednesday. No change is expected on the level of rates. The Fed is, however, expected to announce that it will restart reinvestment of the bonds in its balance sheet as they mature, a modestly stimulative decision.

The key will be the “dot plot” that conveys the FOMC members own expectations regarding the future path of rates. We expect this to show no rate hikes are foreseen in 2019 by the median committee member, a slightly more dovish outcome that is priced in by most strategists. Therefore, we think that on balance the Dollar is more likely to suffer next week than rally.