US Dollar eases back ahead of Fed meeting, MPs to vote on Brexit

afe-haven inflows into the USD have continued to be unwound since Friday after President Trump announced a temporary end to the longest running US government shutdown on record. While this is undoubtedly a positive development for those 800,000 federal workers that went without paychecks, currency traders reacted to the easing uncertainty by selling the greenback and instead favouring risk currencies.

Expectations for a delayed timetable of FOMC hikes have also caused investors to sell the US Dollar so far this week. As we mentioned yesterday, we don’t expect any significant announcements whatsoever from the Fed this week. Interest rates are almost certain to be kept unchanged and, with no interest rate or economic projections scheduled for release until March, we see no change in the bank’s forward guidance. We instead think that the accompanying commentary will stress the need to be patient and suggest the bank will await additional inflation prints before deciding on the next policy move later in the year.

Will MPs vote in favour of delaying Brexit today?

This week is shaping up to be another significant one on the Brexit front, with MPs to today vote on a number of amendments to Theresa May’s Brexit bill. The most important of said amendments to be voted on are likely to include the following:

• Amendment A, tabled by Jeremy Corbyn, of which ensures MPs will have the right to vote on all options on the table that avoid a ‘no deal’ Brexit.
• Amendment B (Yvette Cooper), which would allow MPs a vote on whether to delay A50 by up to nine months should a deal not be agreed upon by the end of February.
• Amendment C (Vince Cable), which would rule out a ‘no deal’ and put in place preparations for a second referendum.
• Amendment E: This would ensure that a time limit to the NI ‘backstop’ is included in the withdrawal text.

At present, it remains hard to gauge how many MPs are in support of each amendment, with the lack of clarity causing Sterling to trade sideways throughout much of London trading on Monday. That being said, we think that strong support among MP’s for either a delayed Brexit, a second referendum, or a ruling out of a ‘no deal’ scenario would see another rally in GBP this week. As we have mentioned on various occasions, an extension to A50 is good news for the Pound, given it opens up the possibility of a softer, more orderly EU exit. Voting among MPs is expected to begin early-evening.

Slew of data releases point to volatile trading week

President of the ECB Mario Draghi spoke in Europe again yesterday. He did, however, largely repeat the same lines from last week’s monetary policy meeting, namely that data in recent weeks has been soft and significant monetary stimulus remains warranted in the Euro-area.

Activity in both Europe and the US is expected to pick up pace this week. Updated EZ growth and PMI numbers on Thursday and Friday respectively could shift the EUR/USD rate should we see any material deviation from the preliminary estimates. Currency traders will then turn their attention to Friday afternoon’s nonfarm payrolls report in the US. The report, one of the few major pieces of economic news not delayed by the government shutdown, is expected to show solid wage gains and job creation around the 168k mark.