FX market outlookPosted on Wednesday, March 13 2019 at 10:14 am GMT+0000
Pound swings wildly on May’s Brexit defeat; more votes to come
- Pound edges up, recovering from earlier sharp losses, as UK Parliament expected to vote against no-deal Brexit
- May’s yet another historic defeat leads equities into risk-off mood; global growth concerns and Boeing slump also weigh
- Aussie slips on weak consumer confidence
Sterling likely to remain volatile as British MPs to vote on no-deal and delaying Brexit
After rallying sharply to a high of $1.3288 yesterday, the pound dramatically reversed lower, hitting a low of $1.3003 as it became apparent that UK prime minister, Theresa May, was on course to suffer another crushing defeat on her Brexit deal. In a second meaningful vote on the deal, May lost by 391 to 242 votes – not as bad as the first vote but still one of the worst defeats by historical standards. Brexiteer Conservatives decided not to back the revised Withdrawal Agreement after the UK’s attorney general said there was still a risk the UK could be stuck in the Irish backstop arrangement indefinitely despite the ‘legally binding’ assurances May negotiated with the European Union at the last minute on Monday.
Having plunged the country deeper into a political crisis, Parliament will face another crucial vote today as MPs will get to decide whether they want to take a no-deal scenario off the table, which could tie the government’s hands in the negotiations. Expectations are that lawmakers will reject leaving the EU without a deal, and this has helped the pound to recover back above the $1.31 handle. The vote is anticipated to take place around 1900 GMT. If MPs vote down a no-deal option, there will be another vote on Thursday on whether to extend Article 50 and delay Brexit.
Dollar on the backfoot after muted US inflation data
A softer US dollar was of some support to the euro and the pound amid the Brexit drama. The euro briefly topped the $1.13 level before easing to around $1.1285. Against the yen, the greenback kept to tight ranges, hovering around 111.25, but the dollar index was unable to hold onto the 97.0 level and last stood at 96.95.
Lower Treasury yields pressured the US currency on Tuesday, which fell on the back of weaker-than-expected inflation numbers. The US consumer price index declined to 1.5% on an annual basis in February, missing forecasts of 1.6% and reinforcing the view that the Fed will remain in ‘patient’ mode for the foreseeable future.
Durable goods orders will be the next US data to come under the spotlight. The January report is due at 1230 GMT.
Global equities back in the red
The muted inflation picture and expectations of a dovish Fed lifted Wall Street on Tuesday, with the exception of the Dow Jones, which was dragged lower by Boeing shares. The company’s stock plunged after several countries banned its 737 Max aircraft following the second crash with the model in five months.
Japan’s Nikkei 225 index also fell sharply after machinery orders – a closely-watched business spending gauge – unexpectedly slumped in January, heightening global growth fears. Major indices in Europe were mixed at the open on Wednesday, awaiting further developments in the Brexit saga and the US-China trade negotiations.
Aussie under pressure from RBA rate cut bets
Higher commodity prices were of little help to the Australian dollar, which slipped on data showing consumer confidence in Australia fell to the lowest since 2015 according to a widely viewed survey by Westpac. The aussie declined to around $0.7060 as the data bolstered expectations of an RBA rate cut later this year.
The aussie’s weakness came despite a small bounce in commodity prices, with both oil and gold moving higher this week.