Sterling lower as Parliament bans a third vote
March 19th: Highlights
- Crisis deepens as Brexit delay likely to last beyond elections
- Dollar continues to fall as market considers more Fed accommodation
- Eurozone Trade Surplus larger than expected
Parliamentary Speaker scuppers May’s plans
This means that unless there are substantial changes to the motion over the Brexit Withdrawal Bill, Bercow will not allow it to be put before the House this week. The Speaker’s actions have added to the chaos and sense of farce that has engulfed the House of Commons since the original vote on the Bill some months ago.
Just where Brexit is headed now is difficult to say although given that the DUP were unlikely to side with the Government the vote may not have taken place anyway.
The Prime Minister is now handed the inevitable task of requesting an extension to the March 29th departure date and it remains to be seen first if Brussels will entertain such a request and second, how long an extension they will permit. The waters are further muddied since any extension beyond June 30th will mean the UK fielding candidates in the European elections.
The pound reacted badly to the news regarding the vote as traders had become more optimistic that the deal may have been approved. It fell to a low of 1.3184 before rallying to close at 1.3257.
This is unlikely to be the only Brexit related drama this week and the pound will remain volatile as Brussels reacts to the news and the Government tries to salvage some semblance of order from the chaos.
Today sees the release of the employment report. It is unlikely to have any effect on Sterling unless the wage inflation data is way out of line with market expectation. It is expected that the increase in average earnings will be unchanged at 3.4% still well above CPI.
Dollar continues to fall as market eyes dovish Fed
Tomorrows FOMC meeting will not make any change to short term rates but the tone and manner of the press conference after the announcement will set the stage for the dollar for the rest of Q1 and well into Q2.
Jerome Powell, the Chairman of the Fed., will need to choose his words carefully in order to ensure that the market remains calm. It will be difficult not to be seen as interfering too much if there is an inference that the next move in rates will be lower having perhaps “over-hiked” last year.
Following the meeting and press conference, the market will drive far more interest in individual data releases. With the employment report still some way in the distance, it will be output and production numbers that will be most scrutinized for further evidence of a slowdown. The Q1 GDP report won’t be released until April 30 although market expectations will be braced for a fall in GDP to below 2%.
The dollar index recovered towards the end of the day, closing at 96.50 although it has exhibited further weakness overnight.
Trade data lightens the mood
The first positive sign for the Eurozone economy which has been suffering from falling output and low inflation came yesterday in the shape of Eurozone-wide trade data which comfortably beat market expectation.
Against a backdrop of concern over global economic growth and falling trade, the Eurozone trade surplus rose to Eur 17 billion in January from an upwardly revised Eur 16 billion in December. This was against a market expectation of a fall to Eur 13.2 Billion.
The news produced a minor rally for the single currency which was already climbing versus a weakening dollar.
It was always likely that the fall towards its long-term target of 1.1000 versus the dollar was not going to be in a straight line. While one piece of positive data will not change the overall picture and with domestic consumption continuing to fall, the euro is far from safe but with the U.S. economy starting to falter, the outlook may be lightening a little.
The euro rose to a high of 1.1360, still shy of resistance at 1.1380 and closed at 1.1340.
Manufacturing and services activity data will be released later in the week with manufacturing still likely to signal a contraction while services will show a slight fall but still expanding. So far, the expected boost to services from Brexit is still not being seen.
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.”