Friday, January 18, 2019

Pound sterling gains over the weekend, but the belief that no deal is a Brexit is a dwindling risk should keep losses against the euro and the dollar flat



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Above: Prime Minister May and the DUP's Foster. Earlier reports that the DUP could support a customs union had since been denied by Sterling since it was disputed. Image source: Flickr, license for commercial use.


- Pound Pares gains before the weekend


- The rejection of a previous Customs Union report by the DUP leads to profit-taking


- Germany is open to a "substantial renegotiation" of the Brexit deal


- disappoint sales data


The British pound is at the forefront before the weekend, rising to a new two-month high against the euro and the dollar as the Brexit headlines continue to hit markets hard and fast. While we reported earlier that sterling rallied strongly this week, we were aware that the currency was overbought on some measures and even the slightest negative news could trigger a setback.


The pound sterling exchange rate against the euro is currently trading at 1.1374. This value last stood at 1.14 on November 15, while the pound's exchange rate against the dollar was seen at 1.2938 (1.30) as last stood on November 13th.


From a purely technical point of view, short-term momentum is sterling. Our latest technical analysis suggests that the current market trend can bring GBP / EUR above 1.15.


The key driver of positive GBP / EUR and other Sterling currency momentum seems to be the continued discounting of a March 29 no-deal Brexit. For foreign exchange markets, this result is considered the worst Brexit scenario from an economic point of view and therefore, when the odds move away from it, sterling profits.


Since the defeat of Prime Minister Theresa May's Brexit deal on Tuesday night, markets have had the chance of a Brexit & # 39; no deal & # 39; because they are convinced that a parliament that votes for the remainder of parliament can gain control of the process.


Such an outcome could be beneficial to Sterling in the short term, but the longer-term consequences of the political class, which appears to be trying to overthrow the outcome of the June 2016 referendum, is a very different matter and could lead to longer-term instability.


At the moment, however, the departure from no deal for Sterling is positive, and the developments over the last 24 hours continue the theme of no deal.


The telegraph reports that a good portion of Prime Minister May's cabinet will resign if the Conservative Party members are instructed to vote against any action in the House of Commons aimed at eliminating a "no deal" as a possible Brexit outcome.


According to the report, 20 middle ministers are ready to leave the government, and the prime minister will come under pressure to give ministers a free vote. Since all opposition parties are likely to vote in polls for the abolition of a no-deal, we suspect that the additional conservative votes would make the passage of such efforts a deadlock.


On Monday, we see at least two motions against the Prime Minister's amendment to his Brexit plan. Nick Boles' petition would force the government to force the EU to sue the EU for a nine-month deferral of Brexit in case it becomes clear that the UK is headed for "no deal". A Spelman / Dromey motion would express Parliament's will against no deal. (Can these laws, which leave the UK on March 29, really be repealed, is it a deal or not a deal? We are not entirely convinced).


Mai can not afford to accommodate more ministers, at least not on the scale proposed. Therefore, the government may have to meet such demands.

In the meantime, the European Union's desire for a pro-EU outcome stemming from the UK's domestic stalemate at Brexit is becoming clearer as the front runner becomes the next German chancellor to issue anything The times referred to as "an eleventh hour plea for Britain to change its mind and stay in the European Union".


Annegret Kramp-Karrenbauer, the new leader of Angela Merkel's party, is the highest-ranking German politician who openly appeals to the United Kingdom to give up Brexit.


"The British should also know that we believe that no choice is irreversible - our door is always open: Europe is at home," says Kramp-Karrenbauer in a letter to the Times.


We reported yesterday on our view that the European Union is feeling a shift towards a softer Brexit or no Brexit in British politics. It is therefore unlikely that they will assist Prime Minister May in changing the Brexit deal on the Northern Ireland restraint system. These changes are a must if May is to secure the support of the Northern Irish DUP and the majority of Brexit purists in their own party.




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The day's big pro-sterling report on the DUP is rejected


The big news of the day was a report for us Times The proposal that Northern Ireland's DUP Party focus on supporting a form of customs union that would keep the entire UK in a customs union with Brussels, the Times said.


"In a dispute with conservative Brexiteers, DUP leaders pointed out that they could conclude a Norwegian deal with a customs union if they eliminated the threat of Northern Ireland attacks," says Oliver Wright, Policy Editor at Mal.


We know that a large proportion of Labor MPs would support a customs union. This suggests that such a result could well pass the House of Commons.


And remember, May needs to get the DUP on her side if her government is to govern effectively. So maybe she has to go where the DUP leads her. The news ultimately supported Sterling, but were rejected by DUP chief Arlene Foster decided.


"The report on the DUP published this morning in the Times is inaccurate and undoubtedly destined to undermine efforts to make the necessary changes to the withdrawal agreement," Foster said in a statement. "For the future, we want an agreement that will regain control of our money, our laws and our borders through a UK Free Trade Agreement with the EU."


The report was rejected, but as is so often the case with Brexit history, the saying "smoke without fire" often proves to be a useful rule of thumb.




Heightened prospects for a second referendum


Meanwhile, the likelihood of a second Brexit referendum in recent days has risen, according to analysts, who see such a result for Sterling broadly positive.


A report in The Sun states: "Ministers are ready to support a second referendum that could completely end Brexit."


Ex-minister Phillip Lee, who quit over Brexit last year, said there are many more MPs ready to join them, but it's a "big job" to get everyone together.


He said "talks" were going on all the time, but right now it's a "minority sport."


Analysts at RBC Capital Markets say the chance for a second referendum is around 40%, but "there is room to go further, and the markets showed that the preference was that it would be GBP-positive."



Federal Minister opens doors to "substantial renegotiations"


German Foreign Minister Heiko Maas is back in the papers this morning, saying that this time there should be a discussion about whether the draft treaty on Britain's planned withdrawal from the European Union should be reopened.


Maas says this would only be possible if all EU members agree.


Maas told the public broadcaster ZDF late Thursday that he had spoken with the UK's foreign minister, and it had become clear that this week there was no majority for a no-deal Brexit in the British lower house.


"So the question is what the deal looks like," he told ZDF. "In the end, the question will be whether to resume the deal, which requires the approval of all 27 member states, which means that everyone has to join in. This has to be discussed now."


This is good news for Prime Minister May, as she suggests that her preferred option of reopening the resignation agreement to ensure legal certainty that the Northern Irish restraint can only be temporary is an option.




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Retail sales disappointed


The pound seemed to have stalled on Friday after official data showed a steeper decline in retail spending in December, although losses were low given recent developments in the Brexit process, which could now support the currency into the new week.


Retail sales declined -0.9% in December, partially reversing a 1.3% revised-down in November and a consensus of -0.8%. For all types of business, except those in the food and fuel categories, sales were down in the month.


"This is mainly due to the black-Friday recovery, but it may also be an indication that Brexit's uncertainty is beginning to weigh on consumer spending," said Thomas Pugh, economist at Capital Economics.


According to the Office of National Statistics, sales decreased both in terms of value and in terms of volume for both December and the fourth quarter. On an annualized basis, however, volume growth was lower than the increase in expenditure.


Total spending on the main roads increased by 3.7% by the end of December, while volumes increased by 3%. However, excluding the sale of fuels, these figures fell to 3.1% and 2.6%, respectively.


"It's clear that retailers had a difficult start to the year, with Q4 sales down 0.2% in the fourth quarter, which is not unprecedented, with volumes down 0.3% in the first quarter - and it follows two-quarters of the strong growth, but it nevertheless indicates that consumers have tightened their purses in the face of rising Brexit concerns, "said Samuel Tombs, UK Chief Economist of Pantheon Macroeconomics.


Financial markets value the data because it means economic growth and the impact that consumption can have on inflation. It is inflation that central banks are trying to stem as they raise interest rates.


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