Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Volatility Hits Pound As Parliament Debates Confidence In May

Published 01/16/2019, 12:20 PM
Updated 07/09/2023, 06:31 AM

Daily FX Market Roundup Jan 16, 2019

by Kathy Lien, Managing Director of FX Strategy

Prime Minister May’s Brexit deal suffered a big defeat yesterday in Parliament. She lost by 230 votes, which was her worse-case scenario.

Instead of falling, however, GBP surged on the decision and is trading well above 1.28. As BoE Governor Carney pointed out this morning, the rebound in the currency reflects expectations that Article 50 will be extended and the prospect of no deal diminished. No one wants a disorderly no-deal Brexit and the next step for May will be to lay out Plan B by January 21.

Confidence Debate

But first, Labour leader Corbyn will be holding a debate of 'no confidence' in the government beginning 13:00 and the vote will be shortly after 19:00 London time. Between 13:00-19:00 there could be quite a bit of UK headlines.

Having survived a 'no-confidence' vote last week, PM May is expected to succeed so the question really is, what is Plan B? Given the scale of the defeat, there’s no going back with small tweaks to the same deal. The March 29 Brexit deadline will need to be delayed, cross-party talks will be held to see if a new plan can be developed or whether there should be a second referendum. The EU has been pushing for reversing Brexit but it also seems amenable to making further offers on the backstop. Either way, GBP is up because the most likely outcome is a soft Brexit or no Brexit at all. If May should lose the 'no-confidence' vote, there will be a general election – unless the government can win another confidence within 14 days. A loss could drive GBP/USD below 1.28.

Declining Euro

The euro, on the other hand, has extended its decline for the 5th day in a row on the back of dovish comments from the ECB. Mersch and Nowotny spoke about the Eurozone’s slowdown and that sentiment is likely to be echoed by the ECB next week. But the worst-performing currencies today are AUD and NZD. Softer credit-card spending took NZD/USD back below 68 cents while the lowest consumer confidence reading in more than 3 years in Australia has AUD/USD testing 100-day SMA support. The U.S. dollar is up across the board with USD/JPY knocking on the door of 109. There was no US data on the calendar this morning so the rise in yields and modest decline in stock futures supported the move. The Fed’s Beige Book is due later today.

Latest comments

in your previous article you said if no deal pound on 1.20 but pound hit 1.30
Do not believe blindly! Trust only your guns!!
thank you
news & articles is just an insight, you are the ones in control of your own trades
I think GBP surge reason longer the breexit period longer expection of little economic impact on major financial institution
Your last article classifying abdefeat with 200+ would sink GBP under 1.2 !!! However , I liked your explanations at all , despite market and crosses moving againts your view , some rare times , like yesterday’s GBP !
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.