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A decisive week for the UK

By Dean Weller

Just when you think things couldn’t possibly get any worse for Brexit, we get hit with a whole heap of fresh speculation. The week ahead is shaping up to be decisive for how the UK withdrawal process will look. Since the extensions of the UK’s withdrawal it remains incredibly unclear (or confusing) of the next steps. May is expected to update ministers on her Brexit strategy when she chairs a meeting of her cabinet this morning, we then move on to a series of possible alternatives/amendments which MPs will debate on. Moving on to Tuesday, May could bring her withdrawal deal back for the so-called third meaningful vote. But the government says it won't do that unless it's sure it has enough support to win. Wednesday is when indicative votes would be held. We should wrap on Thursday when a second possible opportunity for meaningful vote three. The prime minister may hope that Brexiteers will finally decide to throw their weight behind her deal because indicative votes have shown that otherwise the UK could be heading for the sort of softer Brexit they would hate.

If the above isn’t enough to confuse and give you a headache, the weekend headlines would certainly contribute. Media reports have suggested that May’s leadership is being challenged with names being placed in the hat as her possible replacement. It’s also been reported her deal could gain more support should she announce her resignation. With the rumor mill in over-drive the so-called replacements were in full support of the PM and those reports were put to bed, for now at least. Mrs May then summoned leading opponents of her deal to Chequers, her country retreat, to assess whether there is enough support for it to bring it back to the Commons this week. But after lengthy talks with prominent Brexiteers - including Boris Johnson, Jacob Rees-Mogg and Iain Duncan Smith - there was little sign of an immediate breakthrough.

The Pound has opened Monday morning down on Friday’s close amid fresh concerns and the chances of a no-deal Brexit increasing. We have very little macro-economic data this week, but this won’t deter from the fact we could see some excessive price swings.

We witnessed the release of Manufacturing and services PMI on Friday, both coming in below expectations but still in expansion territory. The downturn did find support through an uptick in existing home sales. The National Association of Realtors report showed existing home sales rose 11.8% in February from a 1.4% decline in the prior month to a seasonally adjusted annual rate of 5.51 million units. Economists were expecting a 2.2% increase to 5.10 million homes. Comments from the FED last week were still echoing when we closed on Friday. Downgrading economic outlook is never a good thing for a currency and this will be a deciding factor for how much the greenback can kick on.

Elsewhere, we continue to await developments in the U.S.-China trade talks. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will travel to Beijing this week to meet with Chinese Vice-Premier Liu He for further talks aimed at resolving the trade conflict between the world’s two largest economies.

The week ahead we get to hear remarks from several Federal Reserve Speakers. Given the dovish change in policy we could see some Dollar selling should the same opinion be shared by all.

The Euro was sent crashing lower on Friday following the release of Services and manufacturing PMI. The manufacturing PMI tumbled from 49.3 to 47.6, a 71-month low. The services PMI fell only marginally, and the composite output PMI retreated more moderately from 51.9 to 51.3, implying the overall economy is doing much better than industry for now. The biggest blow was felt from German release. The manufacturing PMI plunged from 47.6 to 44.7, a number only seen amidst the global financial crisis in 2008-2009 and briefly in 2001. In France, both manufacturing and services PMIs disappointed, and both fell back below 50, though both remain above the lows reached in the past few months.

GBP/EUR broke above the 1.17 handle and sustained this for most of the day but was short-lived. After the weekend developments for the UK the price has fallen back into 1.16 territory.

The Australian Dollar still sits below the 0.71 handle against the US dollar with little change during the Asian session. Direction for the Aussie will come from the US-China trade talks this week with one eye firmly on the RBA rate statement next week. For this reason, we believe ranges will be relatively tight this week as we have nothing to note on the domestic docket this week.

It was a mixed bag on Friday for the Canadian Dollar when it came to economic releases. Inflation rose 1.5% on yearly basis in February to beat market expectation of 1.4%. Elsewhere, retail sales declined 0.3% in January to fall short of the estimate for an increase of 0.4%. Dovish crude oil prices have also added further weakness to the Loonie allowing USD/CAD to break above 1.34. Trade balance on Wednesday and GDP on Friday are the ones to watch this week for the Canadian Dollar.

The Kiwi is not a currency that’s on the end of everyone’s lips at the moment, in fact it falls quite low down the pecking order. We have witnessed sideways trading since the Feds dovish statement last week but here’s hoping this week brings some welcomed news and direction. Wednesday will be the key date for the Kiwi, the Reserve Bank of New Zealand is to announce its benchmark interest rate and publish a rate statement. No change in the rate is expected but given the global slowdown it would be interesting to hear how the RBNZ feel this may effect the Kiwi Dollar.