No-deal Brexit avoided, for now

​​​​​​Today's news headlines:

• 'EU leaders agree Article 50 delay plan’. This news removes the risk of a no-deal Brexit at the end of next week and is lending some support to the Pound. However, with Theresa May’s current deal still unpopular, the path ahead remains somewhat uncertain. (BBC)
• 'Trump wants China to double or triple its offer to buy US goods in trade negotiations’. Trade talks are set to resume next week, but with demands for more progress and the threat of tariffs being maintained to ensure adherence with any new terms, the prospect of slow progress could offer further support to the Dollar. (CNBC)

Brexit

Last night, EU leaders offered Theresa May one of two compromises, conditional on the outcome of another parliamentary vote over Brexit next week. There are still some legislative hurdles to overcome, but there is now no reason for the UK to crash out of the European Union without a deal at the end of next week. This has helped pull the Pound back from yesterday’s lows against both the Euro and the US Dollar, although domestic political risks such as the threat of another general election and the potential for further infighting at Westminster will likely leave Sterling susceptible to further bouts of volatility.

US-China trade

Trade talks between the US and China are set to resume before the end of the month, but grandstanding from President Trump threatens to extend, if not derail, the entire process. The Greenback—which has now recovered most of the losses resulting from the cautious mid-week Federal Reserve statement—is strengthening due to its safe-haven status. Any further concern over global trade will have the potential to support the US Dollar further.

US rate hikes

Despite the Federal Reserve’s cautious tone on Wednesday, Standard and Poor’s ratings agency believes the central bank may not be done with rate hikes yet. There’s doubt over whether the global economy is as weak as the Fed portrayed. Meanwhile, an uptick in US employment would again open the door for further rate hikes towards the end of the year or early in 2020, all of which should be supportive of the US Dollar.

GBP/USD

Yesterday, the Pound traded in a two-cent range against the US Dollar as uncertainty over the outlook for Brexit mounted. Concessions from European Union leaders did allow the currency to stage a partial recovery, although, with the Brexit issue merely deferred for another few days, the lack of conviction for Sterling is far from surprising.

EUR/USD

Wednesday’s bounce for the Euro against the US Dollar after the Federal Reserve statement has now been largely reversed; the pair seems to be holding the higher trading ranges of two weeks ago. Avoiding a no-deal Brexit is arguably good news for the Euro, too.

GBP/EUR

The Pound traded down to levels not seen for a month against the Euro yesterday, before rallying on the back of optimism that a no-deal Brexit can be avoided. However, with many questions still lingering over what happens next, as the UK attempts to extract itself from the European Union, the Pound is likely to remain under pressure.