Delay seen as likely for Brexit; US Dollar in focus

Today's news headlines:​​​​​​

  • 'Theresa May pleads for delay to Brexit as EU stands firm’. Brussels wants to see news of a second referendum or a general election before approving any delay, but with the March 29th deadline now fast approaching, Sterling volatility will likely increase so long as no-deal remains a possibility. (The Times)
  • 'Dollar finds footing as new trade worries boost safe-haven bid’. Some US officials have reportedly expressed concern that China is pushing back against some demands from Washington, raising the risk of the whole deal collapsing and boosting safe-haven currencies like the US Dollar as a result. (Reuters)
  • 'Fed may retain bias to hike interest rates’. Today’s interest rate forecasts could throw cold water on market expectations that the two-year rate hike cycle has come to an end, which would have the potential to deliver a boost for the Greenback. (Bloomberg)

Brexit

Theresa May has started the process of officially asking for an extension of Article 50 from fellow EU leaders. This is likely to be accepted although this morning’s news that the request will only be for a short, three-month delay is weighing on the Pound. Unanimous support is necessary to approve the extension and EU Chiefs in Brussels have also said that they will only grant an extension if the UK comes forward with concrete plans over how it intends to unlock the stalemate. A second referendum or a general election are two potential options, but both bring uncertainty that could unsettle Sterling.

US Dollar gains?

The US Dollar has been losing ground for almost two weeks now, but concerns are resurfacing over whether a trade deal with China can be concluded. Failure for Washington and China to reach a compromise will be a further drag on global growth and could drive support for safe-haven currencies like the US Dollar. Meanwhile, today’s Federal Reserve monetary policy statement has the potential to upset market expectations and could boost the Greenback with clarity over its likely path for rate hikes this year. The market is pricing in a potential rate cut before the end of the year, so a more hawkish stance today could give cause for driving the US Dollar higher.

GBP/USD

The Pound is essentially trading sideways against the US Dollar as markets await fresh information. That could come in the form of clarity over Brexit, the US-China trade deal or US monetary policy, so the absence of volatility here is unlikely to last.

EUR/USD

The Euro is now trading comfortably above the levels last seen two weeks ago, before the cautious European Central Bank (ECB) Statement. There’s limited data due from the Eurozone today, but a hawkish note from the Federal Reserve could see the Euro under pressure.

GBP/EUR

The Pound is trading broadly unchanged against the Euro. Brexit clarity would help here, and an early response from Brussels over the request for a short delay to the divorce process could deliver that. A no-deal outcome carries risk for both currencies.