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More votes, more uncertainty

By Dean Weller

It was a quiet economic calendar for Sterling yesterday but as has been the case for the past 2 years we can always rely on our Friend (or foe) Brexit to deliver something to talk about. After a lengthy parliamentary debate during the day the house of commons broke for the all-important vote. This vote was to allow parliament to wrestle back control of the Brexit process from Government. The House of Commons voted 329 to 302 in favor of taking control away from PM May which now opens the door to a range of withdrawal options due to be voted on Wednesday such as considerations on a second referendum, stay in the customs union or cancel Brexit all together. The Prime minister stated after last night’s vote there is no guarantee she will abide by their wish, this places a question mark over where we go from here. May is still trying to table MV3 but even she realizes this is a pointless exercise as the likelihood of it passing are incredibly slim. What we do know is May has to table MV3 at some point this week or we seek to go with a longer extension.

After yesterday’s results Sterling did move higher. Cable broke through 1.32 and GBP/EUR moved higher hitting 1.1679. With a huge amount of uncertainty, I would tread carefully, we have the potential for tight ranges but quite possibly some aggressive action as news breaks.

On the docket today, we hear from MPC member Broadbent.

Little to report on for Cable yesterday, hence price action was limited. We did get the get the chance to hear from a couple of FED members but even this didn’t materialize to much. First up was Fed's Charles Evans, he expressed his concerns about a slow-down in the US economy but downplayed chances of a recession. Up next we heard from Federal Reserve Bank of Boston President Eric Rosengren. His views were nothing we haven’t heard before and highlighted that Q1 US growth is likely to be pretty weak. He added the rate pause is the responsible thing to do and he sees China and Europe a risk to future growth.

Today's a little busier for the calendar. We hear from FOMC member Evans and have the monthly release of Consumer Confidence. Limited price action today for Cable and we expect direction to come from developments in Brexit.

The Euro rose on Monday after better than expected business confidence survey from Germany helped lift the mood and relieve some concerns of their economic growth. Germany’s IFO Institute said its business climate index rose to 99.6, beating a consensus forecast of 98.5 and ending six consecutive months of decline. EUR/USD broke through 1.13 o the back of the release and has held its head above this, for now.

The Aussie has accelerated overnight breaking below 1.85 against Sterling as Brexit woes continue. AUD/USD has moved higher through trade on Monday, shrugging aside broad-based risk off sentiments to push back through 0.71 US cents. The ever-increasing expectations for a Fed rate cut will be the only way the Aussie can find support. The outlook on the Aussie is still bearish with the RBA still concerned about the housing bubble.

With nothing on the docket yesterday for the Canadian Dollar price action was limited. GBP/CAD traded sideways and is expected to continue this way. Domestic data kicks off on Wednesday with Trade balance numbers and then a busier day on Friday.

Overnight we saw the release of the monthly Trade balance figures. Goods exports rose 8.3 percent, goods imports rose 13 percent and the monthly trade balance was a surplus of $12 million. Milk powder, butter, and cheese led the export rise, up $263 million (24 percent). The Kiwi Dollar made a charge against Sterling close to breaking below 1.91, it currently holds just above this level.

Tonight, we have the RBNZ rate announcement where no change is expected. The rate statement that follows will be one to watch. Given the economic slowdown globally I wonder if the RBNZ will give us an insight into how their rate cycle is looking.