Good morning,

GBP: One last chance

Theresa May will ask parliament to vote on the Withdrawal Agreement part of her Brexit deal this afternoon. We have to ask why, given both the Labour party, the DUP and the European Research Group membership of the Conservatives have said that they will not back it.

If this deal fails then politicians are left with either a decision to exit without a deal on April 12th, or a long extension and the need, therefore, to participate in European elections. All of this is of course confused by the eternal politics of the Conservative party; Theresa May told MPs in December that she would not lead the party into the next election but to clear political minds an election may need to be fought, but only after a new Conservative leader is appointed, and that could take months.

With the defeat today, the outlook for the UK is one of extend and go back to the drawing board or no-deal. Rumours are continuing to swirl over the votes this Monday on a customs union and a confirmatory referendum being better backed than they were on Wednesday night but until the Speaker has told us whether the ‘ayes’ or the ‘nos’ have it, then that doesn’t matter for much.

Sterling slipped lower yesterday. How can a currency accurately price the risk of both a no-deal and a revocation of Article 50? It is not the job of the pound to be optimistic and hence, following the DUP’s announcement last night that they cannot back the deal as it stands, GBP strength continues to slip away.

Whether the next step is an election, Tory leadership challenge, customs union, long extension, or all of them together, GBP is stuck waiting for a sign but full in the knowledge that there is almost no room for error.

March 29th was meant to be the day we leave the EU but will likely be the day where we realise just how few options we have left. Sterling is not in a mood to move much higher as a result.

Today’s vote is due at around 3.30pm.

USD: Port in a storm

The US dollar flew higher yesterday as world markets looked for a little bit of security on a strange day of economic news and market dislocation.

US GDP missed expectations slightly but is still stronger than other G10 economies at the moment and an improvement in jobless claims – few people claiming unemployment insurance – lead investors to believe that there may still be room for the labour market to create more jobs and move wages higher.

The Trump administration is prepared to keep negotiating with China for weeks or even months to reach a trade deal, White House economic advisor Larry Kudlow said on Thursday. The US Trade Representative and Treasury Secretary are in Beijing this week.

AUD: Down Under cuts?

Markets are increasing their bets on the Reserve Bank of Australia cutting interest rates at their meeting on April 2nd. Following the comments from the RBNZ, the weakness in domestic and global data, the ban on Chinese imports of Australian coal and the unwillingness for the AUD to be boosted past a level that would hurt exporters it may make sense.

Markets are only pricing a 7% chance of it happening at the next meeting this coming Tuesday.

Have a great day and better weekend.