MPs vote to delay Brexit, Sterling traders unimpressed

Ps voted by a comfortable 211 vote majority in favour of delaying Article 50. This amendment stipulates that the EU exit date be pushed to the end of June, should the House of Commons support May’s WA before the 20th March. Should her deal once again be shot down in parliament in the next few days, as is looking overwhelmingly likely given the hard line stance adopted by the EU, a longer delay beyond the three months proposed would be sought.

The Pound was little budged off the news, largely because such an eventuality was almost entirely priced in and also because this now requires support of all 27 EU nations before it is enacted. This, we think, should be a fairly minor obstacle. The European Commission appears open to a long extension of a year or more, particularly given it opens up the possibility of a Labour led government calling for a second referendum.

As for now, Sterling is holding firm just above the 1.32 level against the US Dollar, with investors awaiting a third vote on May’s deal sometime early next week. Should this fail, news on the length of the extension should soon follow. As we mentioned yesterday, we think that the longer extension the better as far as the Pound is concerned.

US Dollar set for worst week in 3 months

The US Dollar was soft again on Thursday, slipping against its major peers on Friday morning and set for its worst weekly performance in three months. The main reason for weakness in the greenback this week has been investors ramping up bets that the Federal Reserve would take a more cautious stance at its policy meeting next Wednesday. As we noted earlier this week, the central bank is highly likely to issue a downward revision of its ‘dot plot’, and could suggest that it doesn’t expect to hike interest rates at all in 2019.

Macroeconomic reports out of the US yesterday were also far from supportive for the greenback, albeit were largely overlooked by investors in favour of Brexit news. Housing data was particularly soft, with new home sales sinking by a sizable 6.9% month-on-month in January. This is in line with a slew of economic reports that suggest the world’s largest economy is on course to slow in the first quarter of 2019. The Atlanta Fed’s so-called GDPNow growth forecast, which provides a timely running estimate of overall US economic activity, suggests growth of just 0.3% SAAR (seasonally adjusted annual rate).

A general drop off in economic news, combined with a dovish Fed next week, we believe, should help lift EUR/USD back towards our 1.15 end of quarter forecast in the coming weeks.