Good morning,

After slipping earlier in the week, the dollar had a very strong session yesterday, with political headwinds holding back both the pound and the euro.

Deal or no deal 

Despite topping 1.27 at the midpoint of last week, GBP/USD fell to a fresh two-week low yesterday after hitting 1.2350. The pound has recovered somewhat in the Asian session to trade back towards 1.25. Last night, a vote was held in the commons to decide whether MPs would have the power to force Theresa May back to the negotiating table and consult with Brussels in the event of an unsatisfactory Brexit deal. She saw off the (mainly Conservative led) rebellion by a small majority, meaning that when the final Brexit deal arrives at the table, MPs are faced with a simple choice: take it or revert to inhibiting WTO tariffs last negotiated in the 1970s.

This has led many to believe that there’s now far less pressure on May’s shoulders to strike a deal with Brussels that pleases both the right and left of Parliament, with all chips now on the table: corporate taxation, labour rights, travel restrictions and more.

New threats loom in France…

Further polling from across the Channel continued to favour Marine Le Pen’s anti-globalist message yesterday in a further shot across the bow for those who expect April’s election to be a walk in the park for centrist candidates Macron and Fillon. While the odds still lie with Macron becoming the 25th President of France, it’s clear they’ll have a tough time of it while populist politics in both the UK and the USA dominate the headlines.

Furthermore, investors are starting to become weary that the scandal surrounding governmental payments made to Republican Fillon’s immediate family members will work in favour of the Front National’s anti-establishment message. Markets continued to mark down France’s bonds yesterday, pressing the risk premium of French bonds over their German counterparts to the highest level for five years.

… While old monsters rear their head in Greece

Greece’s fiscal woes won’t be news to anyone, but the IMF’s labelling of Greek public debt as ‘unsustainable’ is a stark reminder that further participation by either the European Union or Greece’s thousands of bondholders could be required to finally resolve the country’s long-standing issues. With so many clashing voices already in the European Union, reaching a politically unpopular resolution to write off Greek debt is not what Brussels needs right now and that shows in Greek bond prices: for every tick lower in price, Greek assets dragged the euro with it yesterday.

Today’s economic calendar is light in the Eurozone and the US, but Bank of England Deputy Governor Cunliffe is due to speak at 1:00pm. The Reserve Bank of New Zealand rate decision follows at 8:00pm – they’re expected to keep rates unchanged at 1.75%.

Have a great day.