Brexit dominates the agenda; Dollar sees broad-based gains

Today's news headlines:

  • ‘Pound extends slump to 20-month lows after May delays Brexit deal’. Cable hits lowest level since April 2017. (Reuters)
  • ‘Job openings rise to 2nd-highest on record’. US employers still keen on recruitment despite trade woes. (Associated Press)
  • ‘Gold edges lower as Dollar strengthens amid Brexit uncertainty’. DXY Dollar index pushes higher again. (Xinhua)

There’s no escaping the chaos that is the government’s battle with Brexit. On Monday afternoon, Theresa May announced that today’s vote by MPs on the divorce deal offered by the European Union would be delayed. The Prime Minister is now set to return to Brussels in a bid to seek a better agreement, but the accompanying uncertainty has left the Pound reeling. Not only are questions being asked as to how Brexit may play out from here, but the political risk has also been stepped up another notch with the threat of Theresa May seeing her leadership challenged too.

The collapse in the Pound against the US Dollar was so marked, trading as low as 1.25 shortly after Theresa May spoke yesterday, that it was sufficient to drive the DXY Dollar index back to fresh highs for the month. This is notable given the fact some data is pointing towards a slowing US economy and underlines the magnitude of yesterday’s GBP selling.

UK employment and average earnings data is due for release at 9.30am GMT this morning. Given the beaten down state of the Pound, anything that suggests creeping inflationary pressures could be sufficient to deliver some support for Sterling. However, if last week’s disappointing Services Purchasing Managers’ Index (PMI) reading is to provide any guidance, then this print may hold little in the way of excitement for the market.

The German ZEW reading will be published at 10am GMT, and the forward-looking attributes of this number could provide some fresh direction for the Euro. Anything that comes in below expectations could certainly be sufficient to drive GBP/EUR a little higher following yesterday’s sharp slump, although losses for the Euro against the US Dollar may be somewhat limited unless there is significant disappointment in the data. Thanks to the unfolding political crisis that is Brexit, EUR/USD has already lost the best part of a cent from Monday morning’s highs.

Economic data out of the US today is relatively low profile with Producer Price Inflation (PPI) readings due at 1.30pm GMT; a notable overshoot in this ecostat may result in further Dollar upside. However, with the market warming to the idea that the Federal Reserve might not be hiking interest rates next week, data that supports a more dovish stance on monetary policy has the potential to result in some meaningful selling of the Dollar, especially considering yesterday’s gains and mounting political risk in the US.

GBP/USD

The Pound traded down to 20-month lows during yesterday’s session as mounting Brexit-related uncertainty once again took a toll on the currency. However, a modest rebound has been seen in recent hours, suggesting that despite the turmoil, there might be little left on the downside for the time being.

EUR/USD

Upbeat US jobs data and the impact of Brexit uncertainty saw the Euro fall close to a cent against the US Dollar during Monday’s session. Yesterday’s falling German trade surplus may also prove cause for concern, although, by all accounts, the European Central Bank’s (ECB) outlook remains hawkish, and this could help limit further losses. 

GBP/EUR

The Pound has traded in a very narrow range against the Euro overnight as markets await the next indications over both Brexit and the UK’s political landscape. Upbeat employment data may provide some temporary respite and a bout of volatility, but this is likely to be little more than a sideshow to the main event.