As expected, parliamentarians voted to extend Brexit last night, leaving yet more uncertainties in the process. Theresa May intends to have a third attempt at passing Brexit legislation next week, while the European Union will be weighing the length of a requested delay against the goal it is intended to achieve. Any suggestion that the UK will still be forced into a no-deal outcome in two weeks’ time would be deeply damaging for the Pound, especially against the US Dollar.
Last night, Donald Trump floated a timeline for a conclusion of trade talks between China and the US, a notable development. Given a resolution was initially expected by the start of March, the long delay underlines the complexity of the situation. It may also be sufficient to prevent the US from getting involved in further trade spats ahead of the 2020 Presidential election, based on the amount of political capital such negotiations consume. As a result, risk sentiment has the potential to improve, which may result in a softer US Dollar in the near-term.
After significant swings earlier in the week, yesterday the Pound traded in a comparatively tight range against the US Dollar. However, Sterling is accruing some meaningful losses in early Friday trade, down around half a cent against the Greenback.
With little macroeconomic data being released, the Euro is holding broadly flat against the US Dollar. Last week’s losses in the wake of the European Central Bank’s (ECB) monetary policy announcement have, however, been fully recovered.
As with GBP/USD, the Pound has been sold against the Euro with Brexit uncertainty being a key driver. Yesterday’s comparatively calm session is likely to be the exception as the Brexit deadline approaches.