Pound climbs on prospects of a deal
The Pound failed to attract more buying yesterday morning after Wednesday’s sharp gains created some pressure for a price correction. In parliament, there were renewed doubts that Labour would back amendments specifically ruling out calls for a second referendum. MPs were actively seeking backing for several amendments which would effectively block a ‘no-deal’ Brexit and extend Article 50.
The Pound rose to 1.1520 against the Euro, amid wider single-currency selling, and pushed higher to 1.1534. In the early hours of this morning, reports emerged that the DUP had privately agreed to support Theresa May’s Brexit plan if there was a time limit on the backstop. Despite a high degree of uncertainty, the Pound climbed to 11-week highs above 1.3100 against the Dollar and 1.1594 against the Euro. After the recent Sterling gains and with Tuesday’s meaningful vote 2, we expect further choppy trading as investors adjust positions ahead of the weekend.
Yesterday we saw US Dollar weakness amid the latest US-China trade-related news. In an interview on CNBC, the US Secretary of Commerce Wilbur Ross said that it was too early to judge where the US-China trade talks were headed and that we are miles and miles away from resolving China trade issues as structural reforms are the hard thing with China.
There wasn’t a huge amount of news elsewhere out of the US so we wait to see today’s market movements.
The big news yesterday was that the European Central Bank’s (ECB) monetary policy made no changes to interest rates, no change in forward guidance and there is no increase expected until Summer 2019. Draghi mentioned incoming data from the Eurozone was weaker than expected, growth outlooks were on the downside as well as all the risks that come with that.
Initially, the Euro dipped on the back of Draghi’s comments to 1.1380 but then retreated to lows of below 1.1300 versus the Dollar. January PMI numbers hinted at a slowdown and German manufacturing also dipped, with many analysts believing Germany is flirting with a recession.
The only data due today will be German IFO expectations and business climate for January which will be fairly closely monitored to see if Germany is on the slide.
Data to watch:
24H CHF World Economic Forum – Davos
09:00 EUR IFO – Expectations (Jan) (Germany)
09:00 EUR IFO – Current Assessment (Jan) (Germany)
09:00 EUR IFO – Business Climate (Jan) (Germany)
18:00 USD Baker Hughes US Oil Rig Count
19:00 USD Monthly Budget Statement (Dec)