Sterling was again supported by expectations that the UK parliament would somehow block a ‘no-deal’ Brexit.
The dollar was again hampered by expectations of a more dovish Federal Reserve policy, but the Euro was unable to take advantage as indecision dominated.
Sterling was again supported by expectations that the UK parliament would somehow block a ‘no-deal’ Brexit even if Tuesday’s vote is defeated and potentially postpone the EU exit.
Risk appetite improved on Tuesday as China promised further fiscal and monetary support to the economy.
Equity markets, commodity currencies and oil rallied on hopes for stronger growth conditions and a US-China trade deal while the yen faded.
In an interview on Monday, former Fed Chair Yellen stated that it was possible that the US had already seen the last interest rate increase in the current cycle. The comments reinforced expectations of a dovish Fed policy during 2019 and expectations that there would be no rate hikes during the first half of 2019 and potentially not this year.
EUR/USD found support on approach to 1.1450 against the dollar and rallied to the 1.1475 area at the European close with a mixed impact from political developments. Expectations that a UK no-deal Brexit would be avoided provided an element of Euro support, although the impact was offset by single currency losses against Sterling and overall ranges were very narrow.
The exchange of letters between the EU and UK government on offering reassurances over the Northern Irish backstop had little impact in swaying political opinion and there was little new in Prime Minister May’s speech. Sterling briefly dipped following the resignation of a government whip, although with solid support on dips given expectations that any ‘no-deal’ Brexit would-be blocked-in parliament. Sterling spiked higher in US trading following reports that the ERG group of Conservative MPs could support the deal as frantic manoeuvring continued.
GBP/USD pushed to a 2-month high above 1.2900 while GBP/EUR gained to 7-week highs above 1.1250. Despite fading, the UK currency secured limited net daily gains with some support on Tuesday from firmer risk conditions.
There were still strong expectations that the government would lose Tuesday’s meaningful vote, although Sterling held firm given a high number of alternative outcomes and expectations that the EU withdrawal would be delayed given strong parliamentary opposition to a ‘no-deal’ outcome.
Sterling could gain if there is increased speculation over a second referendum, but potentially vulnerable if a no-confidence motion is called in the government. GBP/USD held near 1.2900 with high volatility inevitable.
|10:00||Euro-Zone Trade Balance(NOV, 2018)||13.7B||14.0B|
|13:30||USD PPI Ex Food & Energy (Y/Y)(DEC, 2018)||2.70%||2.70%|
|13:30||USD PPI Ex Food & Energy (M/M)(DEC, 2018)||0.20%||0.30%|
|13:30||USD PPI (M/M)(DEC, 2018)||-0.10%||0.10%|
|13:30||USD PPI (Y/Y)(DEC, 2018)||2.50%||2.50%|
|13:30||NY Empire State Manufacturing Index(JAN)||12||10.9|
|15:00||ECB President Mario Draghi's Speech||-||-|
|16:30||FOMC Member Kashkari Speaks||-||-|
|18:00||FOMC Member George Speaks||-||-|
|18:00||FOMC Robert Kaplan Speech||-||-|
|21:45||NZD Electronic Card Retail Sales (M/M)(DEC 01, 2018)||-||-0.40%|
|23:30||AUD Westpac Consumer Confidence(JAN)||-||0.10%|