Sterling rallies as Brexit agreement remains elusive

​​​​​​Today's news headlines:

  • 'Sterling leaps after UK lawmakers vote down no-deal Brexit’. Sterling was bolstered by hopes that a subsequent delay to Brexit will either result in something close to the current deal being passed, or a second referendum resulting in the whole process being called off. (Reuters)
  • 'Trump says he is in “no rush” to complete US-China trade deal’. China is also playing down suggestions that President Xi will attend a summit with Trump, increasing caution that this deal may still be a long way from completion. (CNBC)
  • 'Eurozone industrial output shows spark but Germany lags behind’. The uptick comes in the wake of the European Central Bank’s (ECB) recent downgrade of the Eurozone’s growth forecasts for the year and helped the Euro extend gains yesterday. (Financial Times)

Brexit

A series of votes in parliament last night saw politicians reject leaving the European Union with no deal, driving the Pound sharply higher as a result. Markets are supporting the idea that any extension to Brexit will, at worst, see a deal passed, or could even lead to a second referendum, hence the support for Sterling. However, it’s important to bear in mind that this vote was only advisory. The default position by law remains that Brexit will happen on March 29th and any extension—which will be voted on today—needs the approval of all remaining EU member states. With this in mind, these latest gains could yet prove temporary in their nature.

US-China trade deal

A lack of progress in talks between Washington and Beijing continues to frustrate markets. Donald Trump updated the media last night, but the lack of detail coincided with the US Dollar pulling back from recent lows. There are a string of factors in play here, including further evidence of slowing output in China and the release of some tame US inflation data, but a desire by market participants to seek safety is pushing the US Dollar higher. Failure to see fresh developments in the trade deal will only serve to redouble support for the Greenback.

GBP/USD

The Pound added more than two cents against the US Dollar yesterday and temporarily pushed out to fresh nine-month highs, with Brexit optimism the key driver. Reaction from the European Union over any bid to apply for an extension to Article 50 is likely to be vital in determining whether these gains can be sustained.

EUR/USD

The Euro continues to work its way higher against the US Dollar and has now seen last Thursday’s selloff in the wake of the ECB monetary policy meeting fully reversed. Hopes of an orderly Brexit also stand to support the common currency.

GBP/EUR

The Pound continues to swing in a pronounced manner against the Euro, with a range of almost 2.5 cents being recorded yesterday. Any hope that a no-Brexit deal can be avoided should see the cross gain further.