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May sees her agreement defeated even before the vote

By Hamish Muress

So Theresa May’s hail mary pass to secure approval for her Withdrawal Agreement was intercepted yesterday by none other than her Attorney General Geoffrey Cox. What does this all mean, well Cox having read through the “concessions” that May secured, refused to materially alter his view saying that “the legal risk remain unchanged” with regards to the Irish backstop issue. At this point the pound once again came under huge amounts of pressure dropping both against the dollar and euro before markets remembered that the House of Commons is still very likely to vote against a No deal Brexit tonight in a free vote (thanks Theresa for that one). Tomorrow should be an interesting event therefore as the House of Commons is hauled back in once again to vote on whether to have an extension to Brexit which to many in the public may seem a sensible option to ensure that we have an orderly exit. However, at this point the resolve of many Tory backbenchers and ERG members may wane if they feel an extension could lead to the UK never leaving.

As mentioned earlier in the week, the pound is trading on thin ice at the moment and this uncertainty is clearly impacting the UK economy with growth figures released yesterday for the last three months showing growth at only 0.2%.

Yesterday the US saw the release of inflation figures for February but these missed expectations coming in just under at 1.5% which saw the US dollar come under moderate pressure mainly against the Euro. Weak inflation numbers have been a headache for the Federal Reserve for a while but with the market fully aware that the Fed is on hold for a while investors are ignoring these numbers.

Elsewhere the US Trade Representative Robert Lighthizer announced yesterday that US-China progress could unravel if major issues are still not resolved. Brexit is often seen as the largest headwind and main headline in the UK but for investors and the currency markets the US-China war has been the dominant factor for the last 12 or so months so it is worrisome to hear these comments from Lighthizer.

It wasn’t a big day for the Euro yesterday as expected apart from the wonderful Peter Praet, the incredibly important Chief Economist of the ECB, who took to Twitter to answer questions. Of note, Praet said that “negative rates continue to be a powerful tool to reach our price stability objective…the side effects are outweighed but the positive effects” and that the ECB is on its way to reaching its inflation target.

This morning will see the release of January industrial production figures for the Euro area which is the backbone of many European economies and therefore very important. Investors will be looking for a bounce back following the big decline seen at the back end of the year as Europe struggled in the face of global headwinds and the slowdown in china.

The Aussie dollar suffered overnight due to the poor showing on the Westpac Consumer Confidence for March which dropped to its lowest since September last year. The reaction for the Aussie dollar was immediate as it slid against both the pound and the US dollar. Importantly this data has become important once again as the RBA has shifted its outlook over the last few months towards neutral in terms of future interest rates.

The Canadian dollar took advantage of the weaker than expected US inflation figures alongside a tick up in oil prices. USD/CAD. Talk of a cut in supply from Saudi Arabia for oil come April has seen prices increase which is always supportive for the Canadian Dollar with oil one of Canada’s major exports. USD/CAD off the back of this is touching one weeks lows; better news for the Loonie.

The Kiwi was dragged lower overnight by the poor data out of Australia as the currencies find each other tied to the hip. Against the US Dollar the Kiwi is on the back foot and goes to show that it is being dictated to by events elsewhere, as mentioned earlier in the week.