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Historic defeat brings more chaos

Historic defeat brings more chaos

GBP
Sterling faded throughout the day with political tensions rising and the removal of a key Withdrawal Agreement amendment ramped up the expectation of a substantial defeat. The Pound fell steadily towards 1.2700 against the Dollar and the 1.1180 area against the Euro amid frantic positioning in the market.

The Withdrawal Bill and the government suffered a historic defeat by 230 votes, far larger than most forecasts had predicted. Current Prime Minister, Theresa May, stated that the government will listen to the House and deliver plan B by Monday after wider consultations. The Labour Party immediately submitted a no-confidence motion in the government, to be held today and Northern Ireland’s DUP party stated its intention to support the government. The EU stated that there would be no fresh negotiations, however, Sterling only dipped briefly before rallying strongly to above 1.2850 on the Dollar and 1.1273 on the Euro on expectations that the chances of a second referendum or no Brexit had increased. Higher oil prices also contributed support but further Sterling volatility is inevitable. Bank of England Governor Mark Carney speaks this morning and the no-confidence vote on the government is expected around 7pm this evening.

USD

The Greenback, measured by the US Dollar Index, is trading near a four-day high versus other G-10 currencies. There is little macro data in the docket today with major moves expected via goings-on in the UK.

US producer prices increased 2.5% over the year while core prices declined 0.1% compared with consensus forecasts of a 0.2% gain with the annual increase holding at 2.7% which maintained expectations that inflation was under control. The New York Empire manufacturing index declined to 3.9 for January from a revised 11.5 previously, well below consensus forecasts of 10.8 and the lowest reading since May 2017. Companies were also less optimistic over the outlook, although inflation pressures were still strong.

EUR

The Italian banking crisis reared its ugly head yesterday, with concerns hitting the Euro negatively. European Central Bank (ECB) President Draghi remained dovish, mentioning that economic developments have been weaker than expected which exerted downward pressure on an already struggling Euro. Versus the Dollar, the single currency drifted below the 1.1400 mark.

German data shows that its economy grew at its slowest pace in the last five years at 1.5%. This concern over a slowdown in Germany, combined with Draghi’s comments, meant that the Euro struggled to break the 1.1400 level. The Pound strengthened on the back of the Brexit vote which did nothing to aid the Euro.

Data today sees German CPI and Italian industrial output, but the focus will be on Bank of England (BoE) Governor Carney’s speech at 9:15 am and the UK’s CPI numbers slightly after. The fallout from the Brexit vote will also have an effect on the volatility of the Euro today.

 

Data to watch:

07:00 EUR Harmonized Index of Consumer Prices (YoY) (Dec) (Germany)
09:15 GBP BoE’s Governor Carney speech
09:30 GBP Retail Price Index (YoY) (Dec)
09:30 GBP Retail Price Index (MoM) (Dec)
09:30 GBP PPI Core Output (YoY) n.s.a (Dec)
09:30 GBP Producer Price Index – Input (YoY) n.s.a (Dec)
09:30 GBP Core Consumer Price Index (YoY) (Dec)
09:30 GBP Consumer Price Index (MoM) (Dec)
09:30 GBP Consumer Price Index (MoM) (Dec)
19:00 USD Fed’s Beige Book
19:00 GBP PM May’s Leadership Challenge

 

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