Daily Roundup – Markets review
Once again, Brexit disarray has thrust Sterling back into the spotlight as far as currency traders are concerned. Anticipation that a deal could be secured built throughout Monday’s session, but news that Geoffrey Cox, the UK Attorney General, wasn’t satisfied that the legal position had been improved was sufficient to leave Theresa May nursing another heavy defeat. The market had however priced the event in ahead of time, so confirmation of the vote and some key detail as to what happens next was infact sufficient to provide some gains for GBP as a result.
Today, UK lawmakers will vote on whether to leave the EU with no deal, although this is almost certain to be rejected as an option, pushing the likelihood of a request to extend to departure process in a vote tomorrow. As that needs to be ratified by all remaining member states, messages from the European Union here have the potential to provide direction for Sterling – selling will ensue if the UK is forced into a no-deal scenario.
Another potential GBP negative is the risk of a general election being called. Although the current ruling Conservative party is ahead in the polls, the accompanying uncertainty and risk of a hard-left government being formed means that again GBP could be expected to post sharp losses if this event unfolds – it may happen as soon as tomorrow.
The Aussie dollar floundered a little overnight after the release of some weak consumer sentiment data. The absence of any further progress in those US-China trade talks is also doing little to drive confidence in risk currencies such as the AUD.
Back to Sterling again and amidst the Brexit confusion, the government will also issue its spring statement today, looking at fiscal policies. Despite falling UK GDP, tax receipts are rising sharply so some indications over the longer term outlook for the currency may yet be tabled. Although the UK has little prospect of regaining its prime credit rating, positive news here would have the potential to drive yields on UK government debt lower, in turn bolstering Sterling. The challenge however will be separating that news out from the Brexit noise in the background.
Look for further gains on EUR/AUD. The 50 day moving average seems unlikely to drop below the 200 day moving average in the short term. In addition, support is being found at the 38.2% retracement of the December run higher.