UK PM May's "New Brexit Deal" Fails to Help Sterling
What’s been happening?
Pound Sterling – UK Markets
The British pound found demand on Tuesday on the back of reports suggesting that British Prime Minister Theresa May was planning to allow a free vote on a second Brexit referendum but failed to preserve its strength and fell to its lowest level in more than four months against the dollar while posting losses vs the euro for the fifteen straight day.
Although PM May confirmed that they decided to include a requirement to vote on whether to hold a second referendum in the Withdrawal Agreement Bill, she failed to convince lawmakers that her so-called “new Brexit deal” contained significant enough changes for it to be approved in parliament. In fact, Northern Ireland’s Democratic Unionist Party (DUP) Deputy Leader Nigel Dodds quickly responded with a statement that said it was clear that fatal flaws of the draft treaty remained unchanged. "Many of the proposals on the backstop serve as an attempt through domestic law to mitigate a bad deal whereas the focus should be on getting a better deal," Dodds noted.
Similarly, opposition Labour Party leader called the PM’s deal “a prepackaged version of the same old deal,” and added: "The Prime Minister's proposal tonight seems to be largely a rehash of the government's position in the cross-party talks that failed to reach a compromise last week." Additionally, former Brexit Minister Davis told reporters that he will vote against the deal because it allows the possibility of adding a second referendum into law.
US Dollar – US Markets
Boosted by FOMC Chairman Powell’s optimistic remarks and the unabated selling pressure surrounding the major European currencies, the US Dollar Index, which tracks the dollar’s value against a basket of six major currencies, rose to its highest level in three weeks.
The only data from the U.S. on Tuesday revealed that existing home sales in April contracted by 0.4% but was largely ignored by the participants. Meanwhile, Boston Fed President Rosengren reiterated his view that there was no need to alter the current monetary policy in the near-term explaining that the Fed could afford to wait and see if economic forecasts materialize. Also on Tuesday, "Hard to escape the conclusion that trend growth in the U.S. is likely less than 2%," said Chicago Fed President Evans.
Euro – European Markets
The shared currency closed the day lower despite the fact that the European Commission’s Consumer Sentiment Survey showed a slight improvement in the consumer confidence in the eurozone. The preliminary Consumer Confidence Index rose to -6.5 from -7.3 in April and came in better than the market expectation of -7.6. “In April 2019, the Economic Sentiment Indicator (ESI) decreased markedly in both the euro area (by 1.6 points to 104.0) and the EU (by 1.5 points to 103.7),” the Eurostat further noted in its publication.
Earlier in the day, European Central Bank (ECB) Vice President Luis de Guindos told a conference in London, the Europeans banks must build extra capital buffers to mitigate the risk of unexpected shocks amid a slowdown witnessed in the eurozone’s economy.
What’s coming up?
UK: The UK’s Office for National Statistics will release its inflation report on Wednesday, which will include the Consumer Price Index (CPI), the Retail Price Index (RPI) and the Producer Price Index (PPI).
US: The U.S. economic docket won’t be featuring any macroeconomic data releases. However, the FOMC will be releasing the minutes of its May meeting later in the day and investors will be paying close attention to the statement’s tone.
EU: European Central Bank President Mario Draghi and executive board member Praet are scheduled to deliver speeches on Wednesday.