After rallying above 1.33 only the week before last the GBPUSD is under pressure again and
back below 1.3000 as the new week gets underway. The prospect that Teresa May’s
transitional deal will once again not pass parliament tomorrow is of course at the heart of
this latest relapse. That coupled with as of yet, still no compromise from the EU is what has
jangled the markets nerves again.
In reality whilst parliament will surely vote down any chance of a no deal Brexit on the 14th
even if May’s bill fails to pass, that doesn’t necessarily mean the March 29th deadline will be
postponed. Even if the UK desires it, the 27 EU nations will have to unanimously agree to
any extension and outcome uncertainty over that is still surely a problem for the pound. In
any case and as I already noted, long before any press articles last weekend, there may be a
hefty price to pay for an article 50 extension.
So, unsurprisingly the pound is under pressure again and that’s partly down to the dollar too
of course. However, the whole G10 market vista is not exactly one dimensional in dollar
terms because the JPY is relatively strong as well. Whilst we can possibly thank the equity
markets for that most immediately, both the EUR and GBP that are indeed victims of their
own current circumstance, and perhaps more so than the dollar is victor of its own. A fact
endorsed by what was a pretty average US employment report on Friday and yet the dollar
didn’t weaken much at all on the news; news which showed a big miss on the number of US
jobs created in February.
However, what that US employment data did still ensure on Friday; was that the dollar was
unable to make further gains ahead of the weekend. The EURUSD remained comfortably
above that 1.1187 level and the USD index edged backwards a little as it continued to reject
any break above 97.71.
As to what pans out this week? Well, its certainly all eyes on the UK again for sure with the
parliamentary process seemingly one step closer to an outcome. Under such circumstances
the dollar may take something of a backseat this week. Consequently, its surely geopolitics
that will be the driving force for any of the moves to come, be that from Brexit news, or that
surrounding the US/China trade discussions.
What I can tell you is that some of the major interbank players are advocating buying the
pound right now in anticipation that it will be ‘alright on the night’. Whilst they might be
right of course, its partly the squeezing of those positions that’s helped to push the currency
back again in recent days.
Personally speaking, I have long since given up on making assumptions when it comes to all
this and prefer to not to pin risk to something that I surely cannot quantify. What I think is
safe to assume, is that we could see some volatile moves as the week’s events unfold. The
process might be closer to its conclusion now, but from what I can see there are still many
potential outcome scenarios left on the table, some good, some bad and some just
Important Economic Releases Due this week
11/03- 12.30pm US January advanced retail sales
12/03- 9.30am UK January Industrial and Manufacturing Output
12/03- 10.00am US NFIB small business optimism index
12/03- 12.30pm US February CPI report
13/03- 12.30pm Preliminary reading of US January Durable good orders
14/03- 2.00pm US January New Home Sales
15/03- 3.30am- Bank of Japan Monetary policy decision
15/03- 10.00am Eurozone- Final CPI inflation reading for February
15/03- US University of Michigan March Consumer Sentiment Index