Brexit bill in the Lords
With Parliament back in session, Brexit is back to being the number one concern for the pound. A year ago to the day, David Cameron strode out of the 10 Downing Street and announced the date of the referendum on the UK’s membership of the EU would take place on June 23rd. The pound fell and as of this morning is still a little over 10% lower than it was 12 months ago.
Of course, Article 50 is yet to be triggered let alone a formal Brexit but passage of the government’s EU bill will now hit the Lords. Indeed, it is set and expected to be a rather quiet week with little out of the Eurozone, a US holiday today and limited central bank action due, Brexit will likely be the marquee news driver.
UK consumer in trouble
As we had told you earlier last week, our thoughts were that UK retail sales would slip in January after an exuberant November and a poor December. Even we were surprised by the fall however and while these month-on-month figures can be volatile, the 3 month trend suggests that the UK consumer is not waving but drowning. Indeed, last week’s slew of increasing inflation and slowing wage growth is kryptonite for the High St and UK GDP as a whole.
There had been some doubts over the dovishness of the Bank of England post-Brexit but we believe that Mark Carney will emphasise tomorrow at his testimony in front of the Treasury Select Committee that the situation would be worse without the Bank’s decision to cut rates in August. With an ill wind of UK economic data behind him Carney will be in control of the discussion and would represent a risk to the pound.
Kraft (NASDAQ:KHC) and Unilever (NYSE:UN) end talks
The other sterling news is that Kraft who had tabled an offer to buy Unilever and had their initial approach rejected have pulled back from the bid. While this deal is not going ahead at the moment and of course may never do so, the trend is clear.
Indeed, as much as the ARM/Softbank merger that took place in July last year was hailed as a great big thumbs up for the UK, a deal that size is needed each quarter for sterling to maintain a normal level of buying interest. We do not have that many ARMs left and political jostling can easily limit buying interest in a currency.
EUR/USD slips on French political risk
It is the President’s Day holiday in the US today – no word yet on whether it has been renamed ‘Trump Day’ – and so we expect volumes to remain quite low through the session. European politics have dragged the euro lower through the Asian session with the French political noise kicking up a gear as accusations and mud is slung by all candidates at each other with increasing ferocity.
We must also remind you that the Dutch election takes place in a few weeks’ time and our webinar on its likely impact on the euro is this Wednesday afternoon.