Yesterday, the Speaker of the House of Commons, John Bercow, intervened again in the government’s attempts to push through Brexit by declaring that he would not permit a third vote on essentially the same motion. This is a setback for Theresa May’s plans to try and gain a majority on the current Brexit deal before meeting with other EU leaders towards the end of the week. While this could be seen as increasing the risk of a no-deal Brexit, that scenario isn’t in the economic interests of the UK or the EU, hence yesterday’s relatively muted response in Sterling exchange rates. As long as the possibility of a compromise of some shape remains on the table, then support for the Pound could prevail.
Mixed messages emerged yesterday, with Angela Merkel saying she believed inflation was soon going to be at a point where the European Central Bank (ECB) could hike interest rates. However, at a separate event, the institution’s Vice President remarked that inflation would continue to slow this year, with a rebound only being seen in the medium-term. The Euro is struggling to find further gains after last week’s move higher against the US Dollar and by all accounts, this illustrates why. Even if the Federal Reserve sends out a dovish message tomorrow, any upside for the common currency could prove to be short-lived as the Eurozone continues its fight for growth.
The Pound came under pressure against the US Dollar yesterday as a result of John Bercow’s latest Brexit intervention but posted a quick reversion. Given markets’ dislike for uncertainty, this is arguably weighing on the Pound right now, so any clarity over what happens next with Brexit could pave the way for some gains.
There has been little movement for the Euro against the US Dollar since the end of last week. Economic data has been thin on the ground, and a cautious stance from the Federal Reserve over monetary policy has largely been accounted for already.
The abject volatility seen at the start of last week for the Pound against the Euro has abated, but fresh direction is unlikely to be seen until there are signs of progress over what happens next with Brexit. Any hint at an extension being granted could lift Sterling, but uncertainty may hold until the EU leaders’ summit debates Brexit on Thursday.