Market overview for March 11 – March 15, 2019: The Brexit developments reign over market, with the GBP Index becoming the week's only strong gainer and suffering elevated volatility. The Yen's and the US Dollar's measures erase most of their previous gains.
[/ANNOUNCE] {ATTACHMENT}Currency Indexes (CI)
The past week saw most of the observed indexes finish trading in a very narrow range between -0.18% and +0.17%. The only exceptions were the Yen's and US Dollar's measures, which closed the period with considerable losses, and the Pound's gauge, which posted its strongest gain since January 21-25 rally.
{ATTACHMENT}North America: USD, CAD
The US Dollar's index spent the period in a downslide, ultimately posting its greatest weekly loss since November 16 and erasing the gains it managed to accumulate in the two preceding weeks. With that the measure's YTD change returned to the negative territory, and its MTD reading shifted from the second-best to the third, yielding to the Pound's and the Kiwi's indexes.
There were several important data releases in the Greenback's calendar, but the most influential one proved to be Tuesday's inflation data report. As core CPI numbers came in below expectations, and the headline measure disappointed forecasts on the YoY basis, the USD Index lost 0.16 pp in forty minutes, erasing gains it got with the Pound's earlier tumble. Later on Friday, a moderate recovery attempt was capped by disappointing capacity utilisation and industrial production numbers, which saw the USD Index slide down by 0.24 pp in over an hour, putting the measure back to the -0.75% line ahead of the week's close.
The Canadian Dollar's index consolidated above the baseline amid the Pound's turmoil on Tuesday, and held near the +0.25% line up until Friday afternoon. There the measure was hit by a pullback in oil prices and failed to gain any fuel from better-than-expected manufacturing sales data, tumbling into the negative area and ultimately posting its third consecutive weekly loss. The result served to strengthen the CAD Index's position as the worst performer on the MTD basis, but had little effect on its YTD reading.
{ATTACHMENT}Europe: EUR, GBP, CHF
The Swiss Franc's and the Euro's index spent the week moving in tandem, but as the former suffered a greater downslide against the background of the Pound's Monday rally, the two finished the period on the opposite sides of the baseline. With that the CHF Index posted a modest decline, extending its previous period's loss, and the EUR Index reported an equally moderate growth, which allowed it to trim off about 0.20 pp from its long-term losses.
The Pound's index was the period's undisputed leader, posting its greatest weekly gain since January 21-25 rally and thus its second-best result overall. The result served to fully pare the measure's previous strong loss, putting its MTD reading to the second-best position and its YTD growth to the highest level observed in the year so far.
Unsurprisingly, the main drive force behind the GBP Index's moves were the Brexit developments, as the week was marked by a series of deal-related votes in the parliament. Over the weekend, the UK news outlets reported that some senior Brexiteers called for PM May to quit, and also revealed that the EU was preparing to impose additional fees on the UK in case of a Brexit delay. That coupled with the reported deadlock in talks between May and Junker saw the GBP Index open the week 0.32 pp below the preceding Friday close, extending the tumble the measure suffered at the end of the previous period.
On Monday morning, speculations began to rise claiming that the PM was planning to change the March 12 vote from meaningful to provisional, which saw the GBP Index slip below the baseline. From there, however, the gauge went into a rally, with the move gaining additional fuel later in the day from the reports the EU was preparing a new proposal to address backstop concerns, and that PM May was to go to Strasbourg to hold another round of talks with Jean-Claude Juncker. By the end of the day it was widely believed that a new legally-binding backstop deal was reached, and the GBP Index reached the +2.00% line.
Tuesday, however, saw the optimism over the developments dispense and the GBP Index's gains erased as it was revealed that the UK Attorney General Cox judged that the new deal did not change the legal risks of the UK being unable to lawfully leave the backstop arrangement. The GBP Index suffered the week's sharpest 10-minute fall of 0.67 pp and lost the total of 1.09 pp on the news, tumbling to the +0.25% line and seeing its Swiss, Japanese, and US peers surge. With some further zigzagging, the Pound's measure approached the time of the meaningful vote near the +0.50% line, and jumped by 0.50 pp after the MPs voted against the re-negotiated deal. The subsequent moves erased the gains with two 0.20 pp drops, and the GBP Index finished the day back at the +0.50% mark.
Wednesday was marked by the vote on a no-deal Brexit, and the GBP Index rallied through the day, reaching the +1.35% line by 19:00 GMT. There the MPs voted to block the no-deal Brexit, and the Pound's measure reached the week's absolute high of +2.35%.
Thursday was filled by comments on a possible Article 50 extension, with the EU officials citing a long extension, while the UK government announced that the PM would put the deal for another vote on March 20 to try and gain ground for a short delay. The evening vote saw the MPs support the motion to extend Brexit until June if a deal is approved by March 20, and seek an extension "with the terms in the EU's hands" otherwise, and the GBP Index showed a relatively muted reaction, extending its sideways move into Friday and closing the week at the +2.00% line.
Asia-Pacific: JPY, AUD, NZD
The weekend was marked by a worse-than-expected Chinese inflation release, and the Aussie's and the Kiwi's indexes opened Monday 0.14 pp and 0.12 pp below the preceding Friday's close. Still, with the Greenback and the Yen being weighted down, the two measures spent most of the week above the baseline and finished trading with marginal gains. The combination of these two effects made for a complex impact on the long-term standings, where the AUD Index lost some points from its MTD reading, but improved its YTD result. The NZD Index, in turn, added only 0.03 pp to its MTD growth, while its YTD gain extended by 0.27 pp.
Meanwhile, the Yen's gauge opened the week 0.23 pp above the preceding Friday close, but fell below the baseline right away and spent the period in a downslide. As a result, the measure posted its greatest weekly loss since November 2, erasing most of its previous period's strong gains.
Volatility
{ATTACHMENT}With all the jumps and drops of the GBP Index, most of which were mirrored by its peers, the observed turbulence measures ticked up from the subdued levels of the past five periods. The Pound itself posted an extremely high volatility median of 0.050%, while the Loonie and the Asia-Pacific currencies reported solid readings of 0.030-0.032%.
Nevertheless, the maximum volatility levels remained moderate, with the pound being the only major to push its turbulence measure above the 0.065% line.
{ATTACHMENT}Europe: EUR, GBP, CHF
{ATTACHMENT}As was implied above, all of the period's prominent peaks were formed by the Pound's movements. In most of the cases, the sharpest reactions were observed in the currency's pairs with the Yen, the Greenback, and the Swiss Franc, with some of the peaks also gaining fuel from GBP/CAD.
The week's highest volatility peaks were observed in the 21-hour window between the reports on the new backstop arrangement being released on late Monday, and the MPs rejecting Theresa May's deal in the meaningful vote on late Tuesday. All three peaks reached well above the 0.100% line, with the highest one also being notable for a prolonged period of overturbulence seeing and the GBP Index zigzag violently and the Pound's volatility grow from 0.176% to 0.189% in an hour.
Currency Pair Correlations
{ATTACHMENT}As with the other indicators, the most prominent developments in correlations were observed for the Pound's pairs. Thus correlations between GBP/CHF, GBP/JPY, and GBP/USD stood at extremely high levels, with most of the week's values holding above the long-term median. Meanwhile, GBP/JPY correlations with EUR/USD and USD/JPY, and GBP/USD correlations with EUR/USD displayed a weakening, with the mass of their weekly distribution shifting deeper into insignificant levels.
Some notable changes were also observed in AUD/NZD correlations with AUD/CAD and AUDUSD, both of which cut their positive significant tails and dropped their weekly medians closer to zero level.