The expected third meaningful vote did not take place last week, after being blocked by Speaker Bercow and this week politics remains key. Following the new timetable laid down at the EU summit, the House of Commons has until 12th April to pass the EU withdrawal deal. The eventual outcome still remains extremely uncertain. The government’s preferred option remains that the House of Commons signs off the agreed EU Withdrawal Agreement before 12th April. The UK will then be allowed a slightly longer extension until 22nd May to pass the required legislation. In order for this to happen, the government must bring the vote back to the house, past the Speaker, and must also have sufficient support. In order to gain support, some Brexiteers have suggested they may require the Prime Minister to resign once the agreement is passed.
The timing of any further ‘meaningful’ vote is likely to depend on the perceived support for the agreement. Nevertheless, what must happen this week is for existing legislation to be amended to change the exit date. What happens in the event of the Withdrawal Agreement being rejected for the third time remains very uncertain. While a longer extension is available, there are some major hurdles to this. There remains a possibility of a ‘no deal’ exit a few weeks from now despite the majority of the Commons being against this. EU leaders have said that the UK would have to agree to participate in the upcoming EU parliamentary elections by 12th April to secure a longer extension. Whether that would be acceptable to the UK Government remains to be seen. Meanwhile, it looks likely that parliament will have the opportunity to vote on several alternative Brexit options this week.
After reaching its highest level of 2019 last week against the euro and the US dollar, the pound slumped as the risk of a ‘no deal’ Brexit rose. Further volatility is expected this week. Economic news will no doubt be overshadowed by political developments. Last week’s UK economic data showed further employment growth and an unexpected rise in retail sales. Annual headline CPI inflation also picked up modestly last month. The second reading for fourth-quarter GDP growth is forecast to be unchanged from the initial estimate of 0.2%. The Bank of England reaffirmed that interest rates are on hold given the uncertainty.
GBPEUR – 1.1655
GBPUSD – 1.3174
The EU summit agreed to delay the Brexit date to give the UK government breathing space to get the Brexit withdrawal deal passed. This delays the UK’s departure as the EU clearly prefer an agreement to the UK leaving without a deal. The complications of the upcoming EU elections on timing mean that a short initial delay was granted. There is then the potential for a longer delay depending on the next steps within the UK parliament.
The euro slipped sharply after weaker-than-expected Eurozone ‘flash’ PMIs for March. The negative surprise was primarily due to a big drop in manufacturing activity. The data was another indication that Eurozone economic growth remains subdued in the first few months of this year. PMI data for the first quarter point to weak GDP growth of 0.1%. This is basically the same as the second half of 2018. German manufacturing activity, in particular, continues to surprise in its weakness. Monday’s German IFO survey for March will provide further indications of trends in that sector. German and Spanish inflation are also due out this week.
EURUSD – 1.1303
EURGBP – 0.8580
Wednesday’s policy announcement from the US Fed was more dovish than expected. It was no surprise that interest rates were left unchanged for the second meeting in a row. The accompanying press statement was unchanged from last time aside from some downbeat comments about recent economic developments. However, the rate-setting committee downgraded its consensus interest rate forecast to show no rate hikes in 2019. This reinforced its previous message that it would be ‘patient’ before considering any further interest moves. This suggests the pause will last for at least several months. The move has reinforced market expectations that interest rates have peaked and that a cut is the more likely next change. The Fed also confirmed that its balance sheet reduction programme will stop after September and sales will be tapered beforehand.
The likelihood that the Fed is now on the sideline for several months means that upcoming US economic data may attract only limited market attention. Of most interest this week will be January personal spending which will be watched for signs of whether the consumer will continue to drive US economic growth. Meanwhile, February new home sales may provide indications of whether activity is perking up in an area that has been negatively affected by higher interest rates.
GBPUSD – 1.3281
EURUSD – 1.1343
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*Interbank rates correct as at 7 am on the date of publishing