Brexit backstop reassurances bankable?

13th March 2019 Off By binary

GBP
Sterling remained extremely volatile yesterday morning as the Brexit rumour-mill churned and speculation that Theresa May could delay or downgrade today’s meaningful vote in the House of Commons and risk being deposed. The Pound regained ground in the afternoon amid speculation that “modified text” had been agreed between the EU and UK gathered pace when the Prime Minister confirmed she was off to Brussels amid rumours of a deal.

After the US close, an agreement was confirmed on ‘legally binding’ additions to the Withdrawal Agreement to reassure that any use of the Northern Ireland backstop would be temporary. Sterling surged on hopes that this was enough to secure a deal in today’s Common’s vote with highs near 1.3280 against the Dollar and 21-month highs around 1.1765 on the Euro.

This morning has seen a mild correction triggered by uncertainty. The markets await with bated breath Attorney General Cox’s legal verdict on the “changes”. Another deal rejection in Parliament could trigger sharp losses and volatility will remain extremely high today.

USD

The US Dollar traded with a relatively softer tone against its major peers on the first trading day of the week. Headline US employment data surprised many in the markets last Friday. Yesterday’s data from the Census Bureau showed retail sales grew 0.2% from the previous month, slightly above consensus forecasts of no change while the underlying gain also beat expectations at 0.9%.

The Federal Reserve (Fed) remains “data-dependent” and not in a “hurry” to change its gears. The data maintained a high degree of uncertainty over US economic trends which also maintained expectations that the Fed would make no short-term changes to interest rates.

The Dollar was unable to secure any sustained traction following the US data, especially as slightly greater confidence in the global outlook curbed potential US demand against commodity currencies.

EUR

Very little happened yesterday morning with the Euro, German yields were unchanged which led to a slowdown in Euro buying, especially as the US-German yield spread widened to a three-month high. Despite solid readings out of the US, the pair failed to really ignite but still crept up to 1.1274. The Pound, however, saw a very strong evening and Asian session versus both the Euro and the Dollar due to positive news over Brexit.

Today’s economic data sees French non-farm payrolls for Q4 due but the main news will be out of the UK with industrial production, manufacturing production and GDP numbers due. Later in the morning, the European Central Bank’s (ECB) Lautenschlager is giving a speech. Today’s data will be overshadowed by news of Brexit and the all-important vote in Parliament later.

 

Data to watch:

24H EUR EcoFin Meeting
00:30 AUD Investment Lending for Homes (Jan)
00:30 AUD Home Loans (Jan)
06:30 AUD RBA’s Debelle speech
09:30 GBP Industrial Production (MoM) (Jan)
09:30 GBP Manufacturing Production (MoM) (Jan)
09:30 GBP Manufacturing Production (YoY) (Jan)
09:30 GBP Gross Domestic Product (MoM) (Jan)
10:45 EUR ECB’s Lautenschlager speech
12:30 USD Consumer Price Index Ex Food & Energy (MoM) (Feb)
12:30 USD Consumer Price Index (YoY) (Feb)
12:30 USD Consumer Price Index Ex Food & Energy (YoY) (Feb)
12:30 USD Consumer Price Index (MoM) (Feb)
12:30 USD Consumer Price Index Core s.a (Feb)
13:45 Fed’s Brainard speech
N/A GBP UK Parliamentary vote on Brexit
23:30 AUD Westpac Consumer Confidence (Mar)
23:50 JPY Machinery Orders (MoM) (Jan)
23:50 JPY Machinery Orders (YoY) (Jan)

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