UK Prime Minister, Rishi Sunak, and President of the European Commission, Ursula von der Leyen, have announced a new deal to fix post-Brexit problems in Northern Ireland. The deal includes splitting goods into two different lanes; a Green Lane for goods destined for Northern Ireland, requiring minimal paperwork and no checks, and a Red Lane for goods destined for Ireland and the EU, which will undergo checks. This move has kept Northern Ireland inside the EU's single market for goods, which should reduce frictions on Great Britain-to-Northern Ireland trade. The announcement has boosted the pound across the board, with GBPUSD reaching 1.2155 and GBPEUR hitting 1.1374.
In terms of economic outlook, analysts forecast a smaller contraction in output for the UK this year due to falling energy prices and better-than-anticipated business and consumer sentiment. According to data from Consensus Economics, which polls leading forecasters, economists expected a 1% drop in gross domestic product for this year in December and January, but the data for the week of February 20 shows that economists are now upgrading their forecasts, with the average forecast involving a 0.6% fall in GDP in 2023.
Moreover, a survey conducted by the Boston Consulting Group Centre for Growth's inaugural business survey showed that over 60% of British businesses are optimistic about the country's economic growth in the medium term and their own revenues in the next few years, challenging some of the gloomy forecasts for the UK economy.
However, across the waters, the overall downbeat mood among investors shows no signs of improving as markets become increasingly wary of a further rise in borrowing costs. Although US markets rose on Monday, they ended well below the day's highs, and Asian markets were back in the red on Tuesday after gaining in early trade. Today's US consumer confidence data will be especially scrutinized for households' views on economic prospects and inflation expectations. EURUSD currently resides at 1.06.
In today's events, three members of the BOE Committee will speak, with the first being Cunliffe at 10.15 am. Any talk of interest rate moves could cause some volatility for the pound.