Good morning,

GBP: May stays, GBP sits down

Despite the Prime Minister winning last night’s confidence vote 200-117, sterling fell lower initially as the result showed a deep level of discontent in her leadership and, ultimately, her Brexit plans. What happens now could either be incredibly interesting or crushingly dull; the PM heads to Brussels today to continue meetings with European leaders.

For our money, her current deal is almost certainly dead in the water. What Theresa May now does with the political cover that a year’s grace from a leadership challenge affords her will determine what happens to Brexit. Her allies want her Brexit deal brought back to the Commons for the so-called ‘meaningful vote’.

If the vote were defeated, we’d reach an impasse whereby the deal could be turned over to the UK electorate to decide whether this has all been worth it. It’s too early to pin any expectations on that, however, and as such, there is still no reason for investors to be optimistic about sterling or the UK economy as a whole. Both are left in limbo and time is running out.

EUR: ECB meeting overshadowed

With the news from Brussels as well as Paris, Rome and London, there has been more than enough to distract from something as prosaic as the European Central Bank (ECB) meeting today. The ECB is expected to hold all of its policy rates unchanged today, with market focus falling on the new staff economic projections – which will include 2021 for the first time – and the technical details of how the ECB will reinvest the proceeds of the bonds bought as part of its quantitative easing program.

Within the Bank’s communications, we will also be looking to see whether risks are still “balanced” or “weighted to the downside”. We expect the former given the ECB is ending its stimulus program of bond buying although a wildcard of a notification around no-deal Brexit contingency programs could throw the whole meeting into an interesting light.

CNH: Trade sentiment keeps CNH moving higher

Trade optimism continued to drive the Chinese yuan and other emerging market currencies onwards overnight. China has resumed its purchases of US-grown soybeans, easing tensions between the two countries with hopes growing that the US also resumes purchases of other commodities such as corn and rubber. Such has been the pressure, however, that the heartlands of the US will have been affected by the imposition of these tariffs and will have seen a large amount of their crop go to waste.

As long as the good news continues the CNH and other Asian currencies from countries reliant on trade and consumption within Western economies will drive gradually higher.

Have a great day.