Sterling weakened into the key Brexit vote, but dipped only briefly on the heavy government defeat.
Sterling weakened into the key Brexit vote, but dipped only briefly on the heavy government defeat and rallied strongly on expectations that any EU withdrawal would be delayed.
The Euro was dragged lower by persistent growth fears and Draghi’s dovish rhetoric as well as political reservations.
The dollar secured net gains despite a lack of confidence in US fundamentals as weak sentiment surrounding other currencies and Wall Street gains protected the US currency.
Equity markets made net gains amid hopes for further Chinese stimulus.
Oil prices also advanced even with a firm dollar tone as risk conditions held firm while gold was also resilient in the face of US currency gains.
ECB President Draghi stated that recent economic developments have been weaker than forecast and that uncertainties especially relating to the global economy, remained prominent. The slowdown could also be longer than expected, although he also stated that the present stance is very accommodative already.
Sterling lost ground in European trading on Tuesday as political tensions intensified. The withdrawal of one important amendment to the main Withdrawal Agreement vote increased expectations of a substantial defeat. GBP/USD retreated steadily to near 1.2700 on market positioning while EUR/GBP rallied to the 0.8945 area.
In the Withdrawal vote, the government was subjected to a very heavy defeat by 230 votes, a larger defeat than most forecasts had suggested. Prime Minister May stated that the government will listen and make a statement about the way forward by Monday after wider consultations. The opposition Labour Party immediately submitted a no-confidence motion in the government with the Northern Ireland DUP party stating that it would support the government in Wednesday’s vote.
The EU stated that there would be no fresh negotiations, but Sterling dipped only briefly and then rallied strongly with GBP/USD above 1.2850 and GBP/EUR rallying to 1.1275. Sterling was supported by expectations that the chances of a second referendum or no Brexit had increased as higher oil prices also provided support with further volatility inevitable.
Economic Calendar
| Expected | Previous | ||
|---|---|---|---|
| 07:00 | Germany Harmonised CPI (M/M)(DEC, 2018) | 0.10% | 0.30% |
| 07:00 | Germany Harmonised CPI (Y/Y)(DEC, 2018) | 2.20% | 1.70% |
| 07:00 | Germany CPI (M/M)(DEC, 2018) | 0.10% | 0.10% |
| 07:00 | Germany CPI (Y/Y)(DEC, 2018) | 2.30% | 1.70% |
| 09:15 | BoE Gov Carney Speaks | - | - |
| 09:30 | GBP Core CPI (Y/Y)(DEC, 2018) | 1.80% | 1.80% |
| 09:30 | GBP CPI (M/M)(DEC, 2018) | - | 0.20% |
| 09:30 | GBP CPI (Y/Y)(DEC, 2018) | 2.30% | 2.30% |
| 09:30 | GBP PPI Input (M/M)(DEC, 2018) | -3.00% | -2.30% |
| 09:30 | GBP PPI Output (Y/Y)(DEC, 2018) | 2.90% | 3.10% |
| 09:30 | GBP BBA Mortgage Approvals | - | 39.4K |
| 13:30 | USD Core Retail Sales (M/M)(DEC, 2018) | 0.20% | 0.20% |
| 13:30 | USD Export Price Index (M/M)(DEC, 2018) | -0.4 | -0.9 |
| 13:30 | USD Import Price Index (M/M)(DEC, 2018) | -1.10% | -1.60% |
| 13:30 | USD Advance Retail Sales (M/M)(DEC, 2018) | 0.20% | 0.20% |
| 15:00 | USD Business Inventories(NOV, 2018) | 0.50% | 0.60% |
| 15:00 | NAHB Housing Market Index(JAN) | 57 | 56 |
| 15:30 | USD Crude Oil Inventories | -2.800M | -1.680M |
| 19:00 | USD Federal Reserve's Beige Book | - | - |
| 21:00 | USD TIC Net Long-Term(NOV, 2018) | - | 31.3B |
| 23:30 | FOMC Member Kashkari Speaks | - | - |