Good morning,

GBP: Another defeat for the government

Last night Parliament backed an amendment to the Finance Bill, which would limit the scope for tax changes following a no deal Brexit unless authorised by MPs. Today starts five days of Brexit debate before a vote on the Prime Minister’s deal next Tuesday.

Nothing has changed in the past 24 hours to suggest that this deal has become in any way more palatable and everything suggests that even the government knows it is a vote that is set to lose – and by quite a heavy margin according to insiders. The likely path afterwards will be more and more votes on individual parts of Brexit to try to extract some form of consensus; do MPs want a customs union? The single market? Another referendum? No deal?

The issue, of course, is that we could be in a position wherein nothing attracts a majority and we have substantially fewer than the 79 days we currently have until March 29th.

Our belief that this will all come down to the last few days of the Article 50 period looks alive and well, and the longer that the prospect of a no-deal remains on the table the weaker the pound could conceivably become.

USD: Benign influences

Much like the pound, the dollar is moving on political matters this morning although, in the short term at least, these movements are a little more benign. Conversations between China and the US on trade extended into an unexpected third day today and this morning initial reports suggested that the results thereof would be released soon.

Reports overnight from the States that President Trump is looking for a deal with China, modifying some of the more hawkish members of his administration, has swelled risky assets, commodity currencies and sent the yen lower.

Similarly, border issues are not adding to negative sentiment at the moment. Donald Trump’s TV address on border issues fell short of a declaration of a national emergency that would have seen the President ignore Congress in order to find the $5bn he says that he needs to build the wall between the US and Mexico.

Today’s truncated data calendar will still see the publication of the minutes from last month’s Federal Reserve meeting at which the Federal Reserve once again raised interest rates. Following a fair few speeches from Fed voters since the meeting, the impact of these minutes may be diminished but the wider Committee’s thoughts on trade, unemployment, and inflation are necessary.

CNH: A rising tide…

Despite dovish noises coming from the Chinese policy apparatus, the CNH is strengthening this morning, mainly as a result of the wider improving risk sentiment. Reports overnight suggest that China will increase its budget deficit – i.e. spend more than it takes in in taxes – in the coming year to smooth out a slowing of the wider economy. China’s monetary policy still has room for “quantitative¬†adjustment” to support economic growth, according to Zhou Xiaochuan, a former governor of the People’s Bank of China.

As long as the global risk atmosphere remains kind and the Chinese data calendar is quiet, then the yuan will be supported. Tonight will see inflation data released.

Have a great day.