News & analysis


Sterling ended yesterday’s session flat on the whole after major swings following a hammer blow for Prime Minister Theresa May’s Withdrawal Bill. The pound fell half a percentage point in the immediate aftermath against the US dollar, but then promptly rallied as May offered cross-party concessions and the likelihood of the March deadline being extended increased. Opposition leader Jeremy Corbyn launched a motion of no-confidence in the government following the vote, which will be decided at around 19:00 GMT tonight. The general consensus is that it is unlikely that any MP’s from the incumbent ruling coalition of the Conservative and DUP parties will vote against the Prime Minister, and thus should May come out the other end, then another downside risk for sterling is ruled out. Should the government lose, however, though they will have a 14 day grace period before holding a secondary vote, sterling will likely see an immediate sharp selloff. For now, however, conciliatory tones have been struck from the European Union this morning, and the prospect of a revamped softer Brexit deal is increasing spurring the pound on. Parliament will convene around 13:00 GMT today ahead of the vote of no confidence where leaders of both parties will go toe to toe. Political headlines are likely to dominate the news flow, crowding out this morning’s inflation data releases for the UK, as volatility remains heightened in both spot and options markets.


The euro had a volatile session yesterday dominated by events taking place in Westminster ahead of the meaningful vote on Theresa May’s Brexit deal. During the day, the single currency suffered losses up to one percentage point against the dollar, although it closed the trading session with only half of those losses. Data releases offered no further support, with the Eurozone trade balance performing relatively better than expected on the back of imports falling more than exports. European Central Bank President Mario Draghi gave a dovish speech in Strasbourg, confirming that the Eurozone economy was underperforming expectations, but this was keeping in line with the general dovish tone of the ECB since quarter and therefore was not met with surprise. In terms of economic data, the 8.4% contraction in new car registrations released this morning may prove insignificant for the euro’s price action since the day will continue to be dictated by Brexit headlines.


The dollar performed relatively well against the G10, in a day where Brexit and the US government shutdown triggered fresh risk-off moves across market investors. Producer Price Inflation, however, doubled the contraction expected by markets, which, combined with further dovish statements from Federal Reserve officials, cast yet more doubt on the potential for more interest rate hikes in 2019. Regardless, markets could have already priced in the bad news and no strong price action could be coming from this front in the weeks ahead. Meanwhile, the government shutdown keeps as the top headline in the US, with the White House increasing estimated costs to a  0.1 percentage point subtraction of GDP every week it lasts. While no soon resolution is foreseen on this topic, the Beige Book will be released at 19:00 GMT and could signal a more extensive slowdown in the US economy than that which has already been witnessed.


The loonie pounced on firming oil prices yesterday, gaining 0.14% against the US dollar and leading gains in the G10. The loonie’s rally does not look as if it is appeasing this morning with oil prices continuing a slow climb higher. With little released on the data front prior to CPI on Friday, developments in the crude market will dictate whether the Canadian dollar can claw back last week’s losses.