May to seek Brexit delay
April 3rd: Highlights
- Government in disarray finally seeks compromise
- Single currency finding a base?
- U.S. and China close to a trade agreement
May to return to Brussels with no firm plan
Following a marathon session of the Cabinet yesterday, Mrs May announced that she will be asking for a longer extension order to confer with and try to find a solution, in discussion with the Opposition Labour Party.
This outcome may not find support from the EU. Michel Barnier, the Chief Negotiator, commented yesterday that a no deal outcome was now more likely and without a firm plan there is no guarantee that the longer extension will be granted. The split in the ruling Conservative Party is now wider than ever with former Foreign Secretary Boris Johnson berating the Cabinet for handing the power in the negotiations to Brussels.
With no solution other than to defer again, the pound rallied a little, moving to the top of its recent range. No deal is still the outcome which scares traders the most with even stalemate preferable in the short-term. It reached a high of 1.3150 versus the dollar, closing at 1.3130.
Versus the euro, it briefly traded above 1.1800 but fell back to close at 1.1720.
There will be further debate regarding preferable outcomes in Parliament later today with further indicative votes. It is possible that there may be a majority found in favour of a softer Brexit with closer ties to the EU, but the Government is under no obligation to accept that as a part of any negotiation with Brussels.
Euro at rock bottom?
Monday’s activity data was the weakest in six years, yet the single currency is managing to cling onto a semblance of support.
The shift in monetary policy by the Federal Reserve has “pulled the plug” on one of the major reasons for the fall for the euro versus the dollar which saw the single currency fall from around 1.2550 a year ago to its current level.
The weaker euro should provide some impetus to the ability of Eurozone firms to export once the global economy starts to pick up. With Central Banks committed to dovish policies, the ECB may not be alone in seeking to remain in an accommodative mood for longer than had been expected.
The next ECB meeting is next week, and it is expected that, despite maintaining their view that the downturn won’t turn into a long and damaging recession, Mario Draghi will announce measures to provide support to the economy.
Today’s data releases may provide mixed signals for the currency. Services data is expected to provide some relief with activity expected to rise from 52.7 in February to 53.2 in March. However, concern over the economy may have seen retail sales fall. A drop from a rise to 2.2% in February to 2% in March is possible.
The single currency traded in a narrow range yesterday between 1.1228 and 1.1199, closing at 1.1207.
Rangebound dollar awaits employment report
This may be the prelude to an upturn in the global economy which will have a double-edged effect on the dollar. It is likely that the agreement will lead to China opening its markets a little to further imports from the U.S., but the dollar may suffer as global risk appetite improves.
While any confirmation of an agreement may be some time in coming, the market is “gearing itself” for this week’s release of the employment report for March. Analysts are optimistic that the milder weather in the U.S. will have led to an upturn in new jobs being created and filled.
The particularly poor headline number of just 20k new jobs being created in February is likely to be revised upward but it is not now expected to be significantly higher.
The March data could prove to be pivotal. With the next Fed meeting not until the end of the month, another weak report will confirm that the Fed’s next move may be a cut in rates but that will be some considerable time in the future. A number closer to the six-month average will provide confidence to the market that although there is respect for the Fed’s policy, the slowdown in the economy is temporary and the pause in rate hikes is merely a cautionary step.
The dollar index traded between 97.52 and 97.25 in a directionless market, closing at 97.30.
Data for services activity will be released later but that is not expected to have any effect on the dollar.
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”