Sterling hits three-week highs on reports of Article 50 delay

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Sterling jumped to its strongest position against the US Dollar in three weeks on Monday evening, buoyed by media reports out of the UK that stated Theresa May was ready to propose formally ruling out a ‘no deal’ Brexit.

he Pound was well supported throughout trading yesterday on growing speculation that the UK’s Article 50 EU exit date would be delayed beyond 29th March. May has delayed the next parliamentary vote on her Brexit deal to 12th March – a mere two weeks or so before the UK is scheduled to leave the European Union.

While this could be perceived as negative for Sterling, traders have treated this as a positive development, given that it is likely to leave MPs with no alternative but to back a motion to extend A50. There has even been talk that the European Commission is considering a two-year extension, while some media outlets have been suggesting that the Labour Party is ready to formally back a second referendum.

The main move in the Pound did, however, come late yesterday evening, with Sterling leaping by around one-third of a percent to back above the 1.31 level. This was driven by reports that Theresa May would put on the table the option for MPs to formally rule out a ‘no deal’ when alternative courses of action are put forward in the House of Commons this Thursday. Strong support of any option that lessens the possibility of a ‘no deal’ would see further gains for Sterling this week.

Will FOMC Chair Powell help the US Dollar this week?

Aside from Brexit, the main draw in the currency markets in the next few days will be Fed Chair Jerome Powell’s semi-annual two-day testimony to Congress on Capitol Hill.

It will be interesting to see whether recent optimism over trade feeds its way through to a slightly more hawkish assessment from Powell in the next couple of days. Recent communications from the Fed have urged patience and stressed a dimming appetite for additional interest rate hikes. A more optimistic tone of communications would therefore take the market by surprise and likely lead to decent gains for the greenback in the second half of this week.

Regarding US-China relations, optimism surrounding a conclusion to the trade conflict has helped lift higher-yielding currencies so far this week, notably the Australian and New Zealand Dollars. Following Donald Trump’s announcement that the 1st March trade deadline with China has been extended, attention has now turned to a solution to the impasse. Trump and Chinese President Xi Jinping could meet next month in order to finalise the deal.