Good morning,

GBP: Does 48 turn into 158?

Sterling has had its quietest session for a few weeks yesterday; catching its breath after hitting a 20 month low yesterday in trade-weighted terms. We’ve never been closer to a no-deal scenario and both business and consumer optimism, as well as sentiment in the pound, will only suffer further as long as Westminster remains a circus and we inch closer to the cliff-edge of March 29th.

For now, we do see that the downside for the pound is limited, certainly as long as Theresa May remains PM. We don’t see the likelihood of a no-deal scenario increasing materially anytime soon – the European Court of Justice’s ruling on Article 50 limits that – however general election risk and, in particular, a Corbyn win, could be enough to give investors another reason to slap the pound around.

The internal politics of the Conservative party will once again dominate sterling sentiment today with Sky News confirming that the European Research Group have the 48 letters that it needs to be able to trigger a leadership challenge. A ballot will take place between 6-8pm today with May needing a simple majority of more than 158 votes to hold onto the keys to Number 10.

There is also a Cabinet meeting this afternoon which could prompt some headline risk.

CNH: Positive tariff news helps yuan higher

The offshore Chinese yuan leapt onwards overnight as positive news on Chinese trade tariffs with the US helped sentiment. China currently has a 40% tariff on the US imported cars that Trump wants to be cut to 15% – a proposal that reports suggest will be┬áreviewed by the Chinese Cabinet in the coming days. Similarly, the news that Huawei Meng Wanzhou who was arrested in Canada last week has been granted bail has taken some of the pain out of Chinese assets.

The stronger yuan has also prompted a decent increase for the AUD,

EUR: Italy watching France

President Macron’s decision to bow to some of the demands of the ‘gilets jaunes’ will have wider ramifications than simply in France. Hiking the minimum wage and allowing for untaxed overtime will negatively affect the French government’s deficit – they are taxing less and spending more.

Italy will naturally be watching these developments with great interest given their own battles with Brussels over their latest Budget; if Paris can run a deficit of 2.8-3.0% then why can’t Rome?

Have a great day.