At the close of play yesterday, GBP/EUR was at 1.195 and GBP/USD 1.295. The pound has risen against both the dollar and the euro since Friday’s announcement that UK factories have experienced their fastest rise in output for 10 months. The Manufacturing PMI read at 52.8, which is above the 49.7 forecast by markets and above 50.1 reported in January. The all-important Services PMI read at 53.3, slightly lower than the 53.4 that markets were expecting, and lower than the 53.9 reported in January.

Brexit Negations

The recovery in UK economic activity has been key to the rally in Sterling's value that has been seen in 2020, further signs of a robust economy should provide a decent element of support to the currency as the EU and UK enter what are expected to be difficult trade negotiations.

EU governments are set to make a final push this week to toughen the bloc’s negotiating position ahead of the opening of trade talks with the UK. Ambassadors from the EU’s 27 nations will meet today to discuss a fresh draft of the union’s mandate, which will guide the European Commission’s approach to future relationship negotiations with Britain that are set to begin in March.

The two sides are approaching the talks with very different visions of what the relationship should look like, with the UK emphasising its desire to break free from EU rules and Brussels warning that this will reduce the market access it can offer. Diplomats said that the main outstanding issue for the EU mandate was the regulatory demands that that the bloc will attach to a tariff-free, quota-free trade deal with Britain.

German Manufacturing Data

For most of last week the euro was losing ground against both the pound and dollar. Investors have been hesitant to buy the currency as Eurozone data continued to indicate that the bloc’s economy could still be in for an extended period of slowdown. However, German manufacturing data released on Friday will have boosted hopes that the slowdown may be coming to an end.

“The small increase in the Eurozone composite PMI was a big surprise. This should at least temporarily put to bed worries over an imminent recession in Europe,” said Oliver Rakau, chief German economist at Oxford Economics. Still, he warned that “the fragility of global supply chains means that even small disruptions in China could spell large repercussions for Europe down the line”.

Bernie Sanders Wins Nevada Caucus

The dollar continues to thrive against a range of other major currencies including the Euro, the Japanese Yen and the Australian dollar. Despite disappointing economic data issued on Friday, the worrying spread of the coronavirus has encouraged investors to keep buying the USD in order to shift their risk-profile. Gold and the Swiss Franc also continue to benefit from the ongoing market investment to reduce risk but neither can offer the breath or depth of the US dollar.

The USD’s success has also been helped by weakness in the other major economies with the Eurozone still fighting to avoid economic stagnation, Japan becoming more vulnerable to weak economic data, while the Australian economy may need further monetary stimulus to fight off the effects of the coronavirus on local and global economic trade.

In the race to become the Democratic Party’s nominee for president. Bernie Sanders has won the Nevada caucuses by a large margin, making him the clear frontrunner to take on Donald Trump at November’s US presidential election.

Victory in Nevada adds significant momentum to the democratic socialist, who is leading in national opinion polls following his victory in the New Hampshire primary and a narrow loss to Mr Buttigieg in the Iowa caucuses.

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