Uncertainty Surrounding Article 50 Extension Hurts Sterling
What’s been happening?
Pound Sterling – UK Markets
The British pound came under a renewed selling pressure on Monday and weakened against both the dollar and the euro after John Simon Bercow, the Speaker of the House of Commons, announced that he will rule out a third meaningful on the Brexit deal unless there were substantial changes. "What the government cannot legitimately do is resubmit to the House the same proposition, or substantially the same proposition, like that of last week, which was rejected by 149 votes," Bercow explained in his statement. Commenting on Bercow’s remarks, British Prime Minister Theresa May’s spokesman said that they were not in a place to discuss “motion and timing for another Brexit vote.”
Earlier in the day, European Parliament's Brexit coordinator Guy Verhofstadt told the Evening Standard that the EU may not grant the extension to Article 50 if PM May were to fail to get the majority of lawmakers to support her deal. “Why should the EU27 even consider a Brexit extension this week, if the UK parliament vote on the deal is cancelled?” Verhofstadt questioned and argued that a minority of right-wing populists should not be allowed to “drive European citizens and businesses off a cliff.”
Regarding the possibility of the EU denying the extension, junior Brexit minister Kwasi Kwarteng told reporters that the UK would leave on March 29 with no-deal while adding that he still thought there was a chance for a Brexit deal to go through parliament.
US Dollar – US Markets
The greenback started the week under modest selling pressure and the US Dollar Index slumped to its lowest level in two weeks before gaining traction and posting small gains in the second half of the day. A 0.5% rebound seen in the 10-year Treasury bond yield following last Friday’s sharp drop supported the currency on Monday. Nevertheless, the trading action surrounding the dollar remained subdued as investors refrained from making large bets ahead of this week’s critical FOMC meeting, at which the bank is expected to publish the updated dot plot. Meanwhile, the NAHB Housing Market Index, the only data from the U.S. on Monday, stayed unchanged at 62 in March.
Euro – European Markets
The shared currency posted small gains vs the dollar and the pound sterling. The Eurostat on Monday reported that the trade surplus of the eurozone rose to €17 billion (seasonally adjusted) in January from €16 billion and surpassed the market expectation of €13.2 billion. While delivering a prepared speech at an event in Madrid, European Central Bank Vice President Luis de Guindos said that the moderation in the pace of the euro-area economic expansion was likely to extend into the current year. “The effects of the idiosyncratic factors currently weighing on economic growth are expected to unwind, albeit at a slower pace than initially foreseen,” de Guindos further explained.
Earlier in the day, Germany’s Bundesbank in its monthly report noted that the economic growth in the first quarter of the year remained subdued in Germany due to the weak industrial production. The publication showed that the bank expected the construction boom and the rise in private consumption to “insulate the economy in the first quarter."
<-- rates -->
What’s coming up?
UK: The UK’s Office for National Statistics will release the labour market report, which will include the unemployment rate, claimant count change, and average earnings figures.
US: Factory orders will be the only data published in the U.S. on Tuesday.
EU: The ZEW’s Economic Sentiment report for Germany and the euro area and the Eurostat’s construction output and labour cost data will be featured in the European economic docket.