Predictable parliamentary defeat for the PM sees Sterling stumble

Today's news headlines:

  • 'UK's May suffers embarrassing defeat on Brexit strategy’. Yesterday’s vote was seen as mostly being a symbolic move, and it may provide added resolve to those MPs seeking to rule out a no-deal Brexit on February 27th, but the Pound suffered as a result. (Associated Press)
  • 'Dollar drops after retail data suggests slowing U.S. economy’. The December Retail Sales figure had been expected to show a very modest increase but instead fell by 1.2%, making for the biggest drop in almost a decade. Such a marked decline against a backdrop of falling inflation and a strong underlying economy is proving cause for concern. (Reuters)
  • 'Trump plans $8 billion for border wall invoking his own authority’. The US President is declaring a national emergency to allow him to redirect funds already allocated to other projects to fund the controversial project along the country’s southern border. (Bloomberg)

Brexit

There was another embarrassing defeat for Theresa May in parliament after the government once again lost a vote over Brexit, this time one which was looking to endorse its negotiating strategy. Concerns that it would take a no-deal Brexit off the table saw hard-line Conservative Brexiteers abstain from the vote, causing the defeat, but the surprise was arguably the market reaction. This wasn’t a binding vote, and the risk of failure was always there, but the Pound sold off meaningfully anyway. The big test remains the February 27th vote where cross-party collaboration could see the idea of no-deal being forced off the table for good. However, yesterday was a stark reminder that the market clearly remains wary that the UK could still crash out of the EU, something which could deliver more downside pressure on Pound.

Trump’s border wall

Last night’s news that President Trump would declare a national emergency to secure funding for his border wall project failed to rock the US Dollar. Although the demand is now for $8 billion, the funding is planned to come from reassigning other cash that has been ear-marked for broadly similar projects. This doesn’t put any additional strain on borrowing, although a protracted legal battle over the attempt to secure funding plus questions over whether this will become a fall-back position for any US administration may, in time, start to erode confidence in the US Dollar. 

GBP/USD

The Pound fell against the US Dollar once again yesterday, driven lower by renewed political uncertainty. The pair touched fresh four-week lows as a result, and although there has been a modest recovery, the downward trend remains intact.

EUR/USD

The Euro has recovered from recent lows against the US Dollar, but gains have been limited. The sharp fall in US Retail Sales yesterday provided a short-lived boost, but the overall trend remains Euro negative.

GBP/EUR

The Pound sold-off against the Euro ahead of yesterday’s parliamentary vote, although something of a reversion is now underway. As noted above, the downside pressure on Sterling does have the potential to look a little overdone. The outcome wasn’t entirely unexpected, and the real flashpoint will be in just under two weeks.