The dollar is down for the second day in a row after a top European court said that the U.K. could still unilaterally reverse Brexit. The optimism surrounding the U.S.-China trade truce faded away as details became murky.
Pound rises on court claim UK could end Brexit
The dollar dropped against the pound Tuesday morning after a top E.U. court said the U.K. should still be able to revoke its Article 50 notice to leave the bloc.
The non-binding opinion from the E.U. Court of Justice said “the possibility continues to exist” until the withdrawal agreement is formally concluded.
The news is music to the ears of those in the U.K. who wish to remain in the E.U., but it also could help Prime Minister Theresa May as she tries to pass her Brexit agreement with parliament. Hardline Brexiters who are currently against her could see her plan as the only way forward if rejecting her deal opens up the possibility to just remain after all.
The GBP/USD pair rose from 1.273 to 1.283 Tuesday, before dipping back to 1.277.
The EUR/USD pair also rose from 1.139 to 1.1415 after the report. The dollar isn’t experiencing weakness or strength Tuesday as risk-on mood from the trade truce fades, but there isn’t enough concern to drive investors to the safe haven of the dollar.
The details of the trade truce – even when it begins and ends – are not exactly clear, fading the hopes and reversing the risk-on mood in the market.
When asked for more clarification on Monday, U.S. Treasury Secretary Steven Mnuchin and White House Economic Advisor Larry Kudlow dialed back the rhetoric, saying the two countries had agreed to “commitments.”
Kudlow also said that the truce starts on Jan. 1, but the White House later corrected that to be Dec. 1.
The Chinese have also not made any comments, specifically no mention of dropping auto tariffs as Trump tweeted.
Kudlow said the auto tariff agreement is “coming” but the deal “hasn’t been sealed yet.”
Powell speech canceled, economic releases pushed
Due to the national day of mourning for President George H.W. Bush on Wednesday, the U.S. markets will be noticeably quiet midweek.
Federal Reserve Chairman Jerome Powell’s congressional testimony to the Joint Economic Committee (which was highly anticipated by investors analyzing the Fed’s rate path) was scheduled for Wednesday but is now canceled and to be rescheduled at a later date.
As far as data releases, the ADP jobs numbers will be pushed to Thursday, as well as the Markit services and composite PMIs and others.
Most banks, and WorldFirst, will be open on Wednesday.