30th January 2019 Market Update
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🇬🇧 GBP – To summarise the key votes that passed in parliament last night, firstly we saw the majority of the Commons back a plan for Theresa May to return to Brussels to formally renegotiate the Irish backstop. However, very soon after the vote, European Council President Donald Tusk said that the divorce deal was not up for renegotiation; a statement corroborated by French President Emmanuel Macron, which helped to create a negative sentiment towards Sterling overnight. The second key amendment which passed, which also caused a Sterling sell-off in the immediate aftermath of the vote was parliament approving a non-binding declaration that it was not in support of a No Deal. Of the amendments that didn’t pass, the most significant and damaging for Sterling was the failure of the Cooper amendment to extend Article 50 past the current date of March 29th if a deal is not agreed by 26th February. This means of course, as a result of all of the amendment votes last night, a hard Brexit or indeed a No Deal still remains a possibility. We must now wait and see what deal Theresa May can come back with from the EU, as parliament will look to vote again on the 13th or 14th February. In terms of rate moves, the initial reaction after the vote saw Sterling fall as low as 1.3056 as the hopes of a relatively quick Brexit solution dissipated. However, this morning we have seen Sterling recover some of the losses it made last night.
🇺🇸 USD – As a safe haven currency, the swinging of sentiment between risk-off and risk-on will always have a big say on the strength of the Dollar. As such, with today being the start of fresh US-China trade talks, markets remain in a cautiously pro-risk mode as bullish investors hope for some better news. In addition, expectations for the outcome of the Federal Reserve Meeting today is that the central bank is heavily expected to leave its key federal fund’s rate target unchanged at 2.25-2.5 per cent, as they look to take a new approach in their now ‘data-driven’ world. Given that, the focus will be on the press conference delivered by Fed Chair Jerome Powell, which – if history is anything to go by, has the potential to cause notable moves in the Dollar. In terms of the data, the Q418 GDP release has been delayed until next week due to the impact of the government shutdown, but we should still see ADP jobs data, which focuses on the private sector. A figure of over 180 thousand should help support the view that the US labour market remains particularly strong, and also provide an early indication of the wages number that will emerge in Friday’s NFP report.
🇪🇺 EUR – Today signalled another piece of positive European news as Q418 French GDP surprised on the upside at 0.3 per cent quarter on quarter. If we consider that the market overall is very underweight the Euro and has essentially priced out the likelihood of any further interest rate rises from the ECB, positive surprises such as today’s have the potential to support the Euro going forward as investors will be encouraged to take a second look. This is all the more relevant in a data-heavy week for the Eurozone, as looking ahead today we have consumer confidence figures out as well as Italian PPI. As a reminder, French Consumer Confidence came out better than expected yesterday in another upbeat surprise meaning the Euro is faring better than analysts had expected this week. As a result, EUR/USD has been showing some resilience recently and barring significant negative news in either the data today or trade otherwise, we could yet see EUR/USD test the 1.1500 resistance levels last seen in the middle of January.
GBP: Of the three significant amendments voted last night, two wins and a loss mean that any hopes of a quick Brexit solution have once again dissipated;
USD: A big day for the Dollar in terms of risk sentiment as US-China trade talks are set to start, while the FOMC are also due to meet today;
EUR: Euro continues to be resilient as data out this week continues to surprise on the upside.
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