With market sentiment for GBP/EUR rate so volatile at the moment typical trends we’re use to seeing are changing by the hour. Thanks to the news coming from ITV, Sterling exchange rates are holding on to most of its gains from last week. Current key trading level is now around the €1.1660’s. If we see the rate move LOWER than this level for a sustained amount of time, then the likelihood of the rate moving into the high €1.1630s will be high. As with such high volatile times the rate could easily move up HIGHER on the back of an unexpected Brexit updates and if we see the rate move above €1.17’s for a sustained amount of time then we could see it push towards the €1.1770’s. It should be noted that on two occasions now over 2 weeks ago the rate pushed towards the €1.18’s but failed to push higher. Anyone hoping to achieve €1.18+ will need to keep in mind that the best chance of seeing this happen will be PM May getting her deal through the House of commons. This is in my eyes is the best case scenario for Sterling exchange rates and anything else won’t have as positive affect.
The pound reversed losses after the EU-27 leaders came up with a plan B in case the EU Withdrawal Agreement is not passed by the House of Commons next week. GBPUSD fell to 1.30 yesterday, but has recovered to around 1.3150.
PM May is due to meet Donald Tusk around 13:30, rumors and announcements could be on the cards later this afternoon. Brexit updates have caused big movements recently and could easily do the same later this afternoon.
Last week the House of Commons rejected the EU Withdrawal Agreement for a second time, and voted to delay Brexit. Chancellor Hammond’s Spring Statement revised down borrowing projections, increasing headroom for potential giveaways later this year. Overall Sterling exchanges rates were all up much higher as markets attached a lower risk to a ‘no deal scenario. However since then sentiment has changed and yesterday afternoon reports suggested talks between the DUP and May have broken down also announced at pretty much the same time was the House of Commons speaker who has ruled against a 3rd meaningful vote until the deal is changed in some way. MP’s raised concerns that they would be voting again on the same deal without any changes to it which led to the Speaker making this announcement without notifying May beforehand. This has now made May’s situation even more difficult.
The pound was far less volatile during last night’s Brexit voting than Wednesday and may remain calm after the storm into the weekend. All of the proposed amendments were voted down and the government’s motion to delay Brexit passed with a majority of 210. As such, the Government, on the condition that the HoC approves PM May’s withdrawal deal before the EU Leader’s Summit next week, will seek to agree an extension to Article 50 to the end of June. However, if PM May fails to get backing for her deal, the Government will ask for a much longer extension to Article 50, likely requiring the UK to take part in European Parliament elections in late May.
The week ahead is (once again) a key one for Brexit but its hear at last. Meanwhile, the Chancellor of the Exchequer will give his Spring Statement. It is unlikely to herald any immediate policy actions, but will set the context for some important upcoming decisions.
Over the weekend at least one well-known Brexiteer seemed to suggest that he would be prepared to vote for the deal if it is amended to rule out a permanent tie-in to the EU. The PM seems set to return to Brussels to extract such a concession, although the EU is so far still indicating unwillingness to time limit the backstop. Meanwhile, markets have reacted to recent developments by pushing sterling higher. The pound enjoyed its best week since 2017 rising to 1.32 against the US dollar and to 1.16 against the euro.
Expectations that a Soft Brexit deal are accepted will continue to boost GBP exchange rates although the market remains vulnerable to negative updates on Brexit. PM May’s Plan B will voted on again next Tuesday, January 29. This vote, or a change in voting pattern, may well provide the next catalyst for Sterling movements.
Overall focus will remain on the House of Commons ahead of next Tuesday’s meaningful vote on Brexit. The government yesterday was reportedly considering backing an amendment to give extra protection for workers, which commentators said was an attempt to gain support from some Labour MPs for the meaningful vote. As noted on Wednesday, the government will now have to outline next steps within three sitting days if it loses the vote.
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