Brexit confusion reigns

​​​​​​Today's news headlines:

  • 'Third time unlucky? Pound falls as parliament bans another vote on same Brexit deal’. The news wasn’t entirely unexpected as this goes against parliamentary rules but does slightly increase the chance of a no-deal Brexit; time could simply run out with no fresh concessions from the EU. (Reuters)
  • 'Merkel hopes Eurozone inflation hits target so ECB can hike rates’. An optimistic tone from Germany’s leader goes against the latest ECB mantra but underlines the pressure that savers are feeling as a result of the protracted run of low rates. (Reuters)

Brexit

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.

ECB

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.

GBP/USD

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.

EUR/USD

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.

GBP/EUR

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.