isk assets reacted as one may expect, rallying across the board while the Dollar sold off hard. The main beneficiaries were currencies of commodity-exporting countries like the Australian, New Zealand and Canadian Dollars, the Norwegian Krone and every major emerging market currency save the Mexican Peso. Sterling was the clear loser of the week, snapping the rally of the past few weeks and ending down against every major currency on fears of a hard Brexit.

Economic data releases are thin next week. Currency markets will take their cue mostly from political headlines, particularly the Brexit negotiations and progress in the US-China trade talks.

Major currencies in detail

GBP

Sterling performed very poorly last week. Parliament backed an amendment that sent Theresa May back to the EU for further concessions. EU negotiators state that these are impossible. Consequently, although a delayed Brexit is still the most likely outcome in our view, the chances of no deal have increased marginally. Markets clearly saw it last week, sending the Pound sharply downward, particularly against the Euro. The Nissan announcement over the weekend that it’s cancelling plans to build SUVs in Britain over Brexit should add to the short term gloom on Sterling.

EUR

It was a mixed week of macroeconomic news out of the Eurozone. Negative news on Italian GDP was somewhat balanced out by a stronger than expected core inflation reading for January. Currency markets sent the Euro higher on the back of the latter and, more critically, the very dovish FOMC statement earlier in the week. It looks like if the economic newsflow doesn’t deteriorate further, the Euro may rally modestly in the short term as markets digest the dovish turn at the Fed.

USD

The Federal Reserve surprised markets last week with a very dovish statement, the tone of which was confirmed by Chair Powell in the press conference following. The statement suggested that, absent macroeconomic surprises, the Fed is done hiking for the time being and has become entirely data-dependent. The Dollar fell in the immediate aftermath of the meeting against all major currencies, and financial markets worldwide celebrated. The critical payroll report following the meeting on Friday should not significantly change the Fed’s view. Strong job creation continues to go along with moderate wage increases amounting to roughly 1% in real terms. We think the Fed’s change in tone further confirms our generally bullish view on emerging market currencies.