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UK given Brexit extension until 22nd May

By Hamish Muress

Blink and you will miss it. For Over 1000 days Brexit news and updates, whilst dramatic, was often spaced, providing observers time to reflect and analyse. However, the closer we get to the March deadline (remember as things stand we are still leaving in 7 days) the updates and developments are coming quicker and quicker. The latest overnight is that the EU are willing to offer an extension until 22nd May which is short of the extension that Theresa May was pushing for until 30th June. However, in another Brexit twist (George R.R Martin should be taking notes!) the EU have added the caveat that if May’s Withdrawal Agreement is rejected next week then the extension only runs until 12th April. On the surface this seems a sensible and logical move from the EU, however they may have missed the fact that John Bercow may still not grant a Meaningful Vote 3.0 and MPs may get riled by the EU holding a gun to their heads.

Elsewhere, the Bank of England also kept rates on hold with all 9 members of the voted to keep rates at 0.75% and despite raising its growth forecasts for the current quarter, the pound had a torrid day. We have long maintained that the GBP/USD 1.30 level has been the border between Brexit certainty vs. uncertainty and now the pound is peering over the cliff edge as it lost over 1% against the dollar yesterday, making it the worst day since the start of the year.

Yesterday the USD managed to recover some of it’s loses from Wednesday. The dollar had been knocked back by the dovish Federal Reserve meeting with market expectations for no rate hikes this year. The main benefactor yesterday was US stocks which closed at five month highs yesterday with the prospect for further ‘cheap’ money helping expensive tech stocks in particular (Apple, Amazon etc.)

One of the biggest drags on the Federal Reserve remains the ongoing US-China trade dispute and despite some progress being made a few weeks ago subsequent agreements reportedly have been few and far between. The US is sending some heavy hitters to China next week (Mnuchin and Lighthizer) so hopefully progress can be made but in the meantime the US Dollar should remain strong in the face of this mega headwind.

The Euro saw most of its recent gains against the USD wiped out yesterday and there could be further loses on the cards for EUR/USD today as we are faced with the prospect of Eurozone PMI figures which never fills investors with confidence. At the EU summit today the focus shifts onto the ECB with conversations with Mario Draghi, the single market and industrial policy.

The Australian dollar followed a similar story to the Euro overnight as its seen most of its recent gains against the USD wiped out as it neared month highs. It could be a quiet week next week for the Aussie dollar and there’s certainly little to report on the calendar front. However, as mentioned earlier the US are sending over both Mnuchin and Lighthizer to China next week so any US-China trade updates could impact the Aussie.

The Canadian dollar wasn’t able to take advantage yesterday of the recent rise in oil prices. Despite oil hitting a four month high breaking $60/barrel USD/CAD made a run for 1.34 which shows that the relationship between oil prices and the strength of the Canadian dollar is fluid (pun intended).

Not wanting to sound like a broken record but yesterday the Kiwi performed similar as the Euro, Loonie and Aussie. Next week though could be significant for the New Zealand dollar with the latest Reserve Bank of New Zealand meeting. The RBNZ finds itself at a crossroads as it struggles to maintain a ‘neutral’ policy outlook and next week could see a shift towards a looser policy which will hamper the Kiwi.