Good morning,

GBP: Westminster holds the whip over sterling

Another round of will-they-won’t-they will play out in Westminster later today as Parliament votes on amendments to the government’s planned Brexit deal. While around nine amendments could possibly be chosen by the Speaker today, markets are focusing on two in particular; one that would force and extension of three months to the Article 50 process, pushing the cliff-edge away from March 29th and the other forcing the government to look for ‘alternative arrangements’ to the Northern Irish backstop.

Both have a chance of being selected, both have a chance of passing the House of Commons with each having an effect on what will happen to Brexit in the longer-term, and also the pound.

The ‘Cooper’ amendment that would extend Article 50 has the greatest chance of being selected given its cross-party support and has been the main support for sterling in the past week or so. A successful vote would likely see sterling pop a little higher although the larger move would come should the amendment be defeated, with sterling likely to crumble as investors focus on a deal deadline of fewer than 60 days.

The ‘Brady’ amendment has less cross-party support and is therefore less likely to be picked by the Speaker. Last night Prime Minister May told MPs that she was happy to back the amendment as it will give her a weapon with which to return to Brussels and ask for changes to be made to the backstop. Whether the EU are moved by this depends if the amendment wins.

The best case scenario in our eyes for sterling is the ‘Cooper’ amendment passing and the ‘Brady’ amendment failing with the opposite being the worst case scenario. In the former, we would see the chances increase of a softer Brexit than currently imagined as possible, while in the latter the odds of a no-deal would rise as would the chances of an election.

Speaker Bercow will select amendments at around 12.45pm with the voting beginning after 7pm. There is still time to register for our webinar on what this all means for sterling and the UK economy in the coming months and what SMEs can do about it. You can register here for our presentation that begins at 2pm GMT.

USD: Huawei charges ratchet up trade pressure

The atmosphere around tomorrow’s trade talks are heating up with the US Justice Department announcing the charges that it alleges Chinese telecoms company, Huawei, have committed. This follows the arrest of the company’s CFO last year and continual warnings that the company is involved in espionage and technological theft.

All of this comes a little more than 24hrs before talks between China and the US on the wider trade relationship are set to continue in Washingston.

The dollar and other haven assets have been supported overnight as markets react to the increasing pressure surrounding these talks and the onus that is being put on corporates. While the US is focusing on Huawei, China will be focusing on Facebook, Google, Apple and Twitter, and their access to the most populous country in the world.

AUD: Poor sentiment but Aussie fights on

The Aussie is holding up well ahead of tomorrow’s inflation number despite a poor business sentiment survey overnight. The December NAB business survey portrayed a slowdown in business conditions that is largely in keeping with the weakness seen elsewhere in the global economy.

Have a great day.