Brexit Debacle Drags On

7 December, 2018

Simon Eastman

Markets remained cautious yesterday as Theresa May dealt with the fallout from being found in contempt of Parliament the other day. Questions arose as to whether she might delay the vote on the Brexit plan, due next Tuesday, after being forced to release details of the legal advice she had sought on the deal, but she held steady – the vote is still due to go ahead.

As regular readers will know, this is a major stumbling block for the pound as we expect if the deal is not passed we could see a sell-off on the pound, which has been under pressure since the deal was agreed last month. Today was no different, with sterling/euro rates trading in a slim half cent range over the day.

With no UK data on Thursday, it was left to releases elsewhere to affect the plight of the pound against the other major currencies. Overnight Wednesday, the Australian trade balance figures came out much lower than expected, leaving the vulnerable Aussie to lose two cents against the pound as European markets opened at 8am. This being a major slide, little else happened over the course of yesterdays trading session, but still a decent saving for anyone looking to move down under before the end of the year.

After lunch, across the pond, we had a flurry of US ecostats, including trade balance and a few employment releases like employment change and labour costs. With these all coming in under forecasts, the pound managed to claw back a whole cent over the day. Even better manufacturing PMI couldn’t help reverse the greenbacks losses as markets await the more key non-farm payrolls figure out at lunchtime today. Further north of the border, Canada released some trade balance figures on import and export which again missed their mark and left the Loonie half a cent lower against the pound.

Today is another quiet day for UK data, with just a low key consumer report on inflation expectations. At 10am the EU releases its GDP figure and employment change data, before we switch to the US markets for the eagerly awaited jobs data, including average earnings, unemployment and non-farm payrolls. Canada also release their unemployment rate at 1.30pm with Fed member Brainard rounding off the day with a speech at 5.15pm. During the afternoon its also worth noting the Christian Democrats (CDU) in Germany are holding their elections to find Angela Merkels successor, which may have an affect on the euro if investors don’t like the outcome.

All in all a busy day for data, with much to affect the markets. Sterling likely to remain under the cloud of the Brexit deal vote next week so if events elsewhere fall into the “better than expected” category, we should expect to see further selling of the pound and those overseas buying budgets, get squeezed that little bit more.

To avoid any adverse consequences, buyers might be prudent to lock into a forward contract, protecting themselves from any downside in the rates. To discuss further, contact one of the team today for more information.