Sterling edges higher on No Deal vote
Morning mid-market rates – The majors
April 4th: Highlights
- May/Corbyn talks “constructive”
- Euro to benefit from easing global economic fears
- Fed policy creating a “headwind” for the dollar
Brussels “holds all the cards”
As has been the case for almost the entirety of the process MPs are very clear on what they do not want but even at this late stage, it is impossible to find common ground on how they want the future relationship to look.
As a further exercise in “kicking the can down the road” Mrs. May is going to ask Brussels to agree to the extension of the UK’s departure to May 22nd citing progress in talks with Corbyn.
It is by no means certain that the EU negotiators will agree and there are rumblings from individual members, not least of all French President Emmanuel Macron, who is against a long delay, fearing the disruption caused by the UK’s participation in the European Parliamentary elections.
However, Jean-Claude Juncker, the European Commission President seemed to contradict Macron pointing to the EU demanding a longer delay if next week’s deadline is extended, commenting that a short delay is not practical. It is feasible that Brussels will demand the UK accept an extension until the end of the year at least with March 2020 also being mentioned as possible.
This will anger Brexiteer members of the Government who already see talks with Corbyn as being a denigration of the Government’s responsibility to deliver Brexit on time.
Sterling rallied but remained within its recent range as no deal was pushed back despite it still being possible next week. Mark Carney, the Governor of the Bank of England commented yesterday that the UK faces an “alarmingly high risk” of accidentally crashing out of the EU, although his comments were made prior to the House of Commons vote.
The pound rose to a high of 1.3196 versus the dollar but fell back a little to close at 1.3163.
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Euro to benefit from easing of global trade concerns
So far, the nature of what has possibly been agreed is shrouded in secrecy but if it allows for global trade to start to flow again it can only be good for the Eurozone and the single currency which relies on smooth frictionless exports.
Services activity data which was released yesterday showed that activity in that sector of the economy is still expanding although the “Brexit boost” is still not fully evident. Composite data for overall activity was dragged lower by poor manufacturing activity but is still showing growth. It fell from an upwardly revised 51.9 in February to 51.3 in March.
Individually, Germany showed the most marked improvement in services activity, possibly showing the first sign that activity may switch from London to Frankfurt as businesses prepare for any post-Brexit issues. Overall, employment in the services sector in the UK remains buoyant but there is a fear that regulatory pressure could see jobs leave for the EU.
The single currency remains well above its recent low, reaching a high of 1.1255 before closing at 1.1232. There is a sense that the single currency is “treading water” ahead of next week’s ECB meeting and any positive outcome from the U.S./China trade negotiations.
Fed pause “holding the dollar back”
Last year his wrath was taken out on China although he seems to have softened the rhetoric considerably as a deal on trade beckons.
As China’s global influence grows, the U.S. is going to have to find a way to co-exist, particularly as the burgeoning national debt continues to grow. There is a new model for the economy where there will be no pretence at balancing the budget as the U.S. accepts that manufacturing output has been exported to Asia and will never return. China will effectively be lending to America to fund its purchase of Chinese goods.
The dollar index remains mired in a narrow range as the markets ponder whether the Fed has paused in its normalization of monetary policy or rate hikes have come to an end. In the short-term, tomorrow’s employment report could push the index to the limits of its current range, but it is doubtful that markets will react too dramatically to a single data release.
Yesterday the index fell to a low of 96.96, closing at 97.13.
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.”