Parliament fails to break Brexit deadlock
Today's news headlines:
- 'Brexit stalemate deepens as U.K. fails to agree on a way forward’. Politicians weren’t in favour of any of the eight plans proposed for advancing Brexit. This has increased concern that the only viable options are the deal currently on the table which still lacks majority support, leaving the Pound to slide as a result. (Bloomberg)
- 'Dollar edges up as more central banks turn dovish, defies lower bond yields’. US Treasury yields may be falling, but with dovish signals coming from the Eurozone and the Pound marred by Brexit disarray, the Greenback still has appeal. (Reuters)
- 'Mario Draghi says ECB still on track to hit inflation target’. The European Central Bank (ECB) President believes that the strong labour market will support growth as constrained supply pushes wages higher. (Financial Times)
Politicians managed to amend the law to ensure the UK doesn’t leave the EU by the end of the week, as had originally been planned, but finding a solution to the Brexit impasse remains elusive. Eight options were debated yesterday, none of which found majority support, leaving the Pound to drop around a cent against the Euro. The existing deal still doesn’t have the backing of the Democratic Unionist Party, suggesting a no-deal Brexit or a lengthy delay are now possible. Theresa May has offered to stand down if her deal is passed, but even if this fails to materialise, the level of political risk has certainly increased.
US Dollar gains
The Greenback continues its theme of drifting higher, driven predominantly by a lack of appetite for other currencies. Mario Draghi may have been upbeat over inflation prospects yesterday, but he reiterated the point about interest rate hikes being delayed, which did little to deliver any confidence in the Euro. Earlier this week the Reserve Bank of New Zealand (RBNZ) also struck a cautious note over its policy outlook, citing a slowdown in the global economy. With Brexit developments not materialising, the safe-haven allure of the US Dollar appears to be winning out.
With hopes for a way forward dashed, the Pound fell back to its lows for the week against the US Dollar yesterday. Brexit uncertainty will likely keep Sterling under pressure.
The Euro continues to trade around two-week lows against the US Dollar. With the ECB repeating its cautious mantra over monetary policy, downside pressures for the common currency could be sustained.
Failure for any glimmer of a Brexit breakthrough saw the Pound drop a cent against the Euro last night. Opinions remain divided as to whether a no-deal outcome can be avoided, and until politicians can find something to agree on, this threat is likely to overshadow the Pound’s fortunes.