Sterling moved sharply higher in very volatile conditions as the House of Commons voted that the UK should not leave the EU without an agreement in any circumstances.

Sterling moved sharply higher in very volatile conditions as the House of Commons voted that the UK should not leave the EU without an agreement in any circumstances.

Benign US inflation data again undermined the dollar with improved European sentiment having a significant impact as EUR/USD traded above 1.1300.

Oil prices moved sharply higher with WTI at 3-month highs amid expectations of tighter supply conditions.

Commodity currencies made strong gains on Wednesday on hopes for stabilising global demand before retreating after weak Chinese industrial data.

After firm gains, the mood in equity markets also turned more cautious after China’s industrial data, although with solid underlying support.

Precious metals surrendered initial gains despite net EUR/USD gains, but gold held above $1,300 per ounce.

The government’s budget update had little impact given the Brexit focus. The 2019 GDP growth forecast was cut to 1.2% from 1.6%, but lower borrowing forecasts and stronger wages growth provided an element of Sterling support.

Ahead of the next important House of Commons vote, markets assumed that there would be a vote against ‘no-deal’ and that the overall momentum was for a softer version of Brexit or a delay which underpinned Sterling despite tough EU rhetoric.

The House of Commons descended into chaos after an amendment to the government’s vote was approved. This non-binding vote stated that the UK should not leave the EU without a deal in any circumstances, stronger than the government’s version and reinforcing expectations that a ‘no-deal’ would be blocked. There were also reports of another meaningful vote next week. Markets were more confident that there would be a softer Brexit which triggered further strong Sterling buying with 8-month GBP/USD highs above 1.3350 on short covering as EUR/GBP dipped below 1.801.

GBP/USD corrected lower on Thursday, but found support below 1.3250 ahead of another parliamentary vote later in the day on whether to extend Article 50. High volatility remains inevitable given extreme political uncertainty amid speculation over a no-confidence vote or fresh elections.

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