Pound perks up in the wake of Brexit news

Today's news headlines:

  • 'May’s Brexit point man lets slip PM’s possible endgame’. Reports have emerged that the chief Brexit negotiator was overheard suggesting that Theresa May will present MPs with an option at the end of March to accept her deal or a lengthy extension to Article 50, averting the potential catastrophe of a no-deal outcome. (Financial Times)

  • 'Trump says he may not stick to March deadline on China tariffs’. The US President has softened his stance over the previous hard-stop on trade talks and has expressed a willingness to extend the deadline rather than impose higher levies. (CNBC)

  • 'Dutch central banker calls on ECB to pause plan to ditch stimulus’. An outside contender to replace Mario Draghi as ECB chief has adopted a dovish stance over monetary policy, falling into line with other member state bankers in a move which highlights the sharp deterioration in Eurozone economic sentiment. (Financial Times)

Bank of England on Brexit

Two key Brexit developments were seen yesterday. One was a speech by Bank of England (BoE) Governor Mark Carney, who at several points gave what could be seen as a glass half full outlook to the uncertainty that lies ahead. This marks something of an about-turn for the BoE Chief who has been incredibly downbeat over the UK’s economic prospects. Carney’s comments have been sufficient to help pull the Pound back from recent lows against both the Euro and US Dollar.

Westminster on Brexit

The Financial Times has reported that the lead Brexit negotiator, Ollie Robbins, was overheard outlining Theresa May’s endgame for Brexit, with two scenarios on the table that would avoid the damaging no-deal outcome. This is only hearsay but comes from a highly respected source and again ties in with the Pound pulling back from recent lows. However, this news could deepen divisions in the Conservative Party and reignite political risk; the accompanying theme of uncertainty stands to leave the Pound looking vulnerable.

US trade talks

Senior US diplomats are back in Beijing with talks scheduled to resume tomorrow over resolving trade differences before the March 2nd deadline for import tariffs to be increased. Initially, this was seen as an immovable deadline, but the idea that there could be a little flexibility is important. Donald Trump can’t meet the Chinese President before the end of the month owing to the North Korean summit, so a conciliatory approach would likely improve overall risk sentiment and may, in turn, have the potential to see the US Dollar weaken as a result.  

GBP/USD

Sterling traded down to the late January lows against the US Dollar yesterday but is currently finding some support from a wide range of factors. However, UK inflation data due for release this morning could see sentiment change again if the forecast sharp decline is realised.

EUR/USD

The Euro saw its best day of gains over the US Dollar in almost three weeks, despite a lack of fundamentals to support the move. Emerging risk-on sentiment over China trade optimism may be helping, in which case failure to see progress from Beijing could prompt another move lower.

GBP/EUR

The Pound has found some limited gains over the Euro in overnight trade, with Brexit optimism lending some support here, although the downward trend of the last three weeks still appears to be intact.