Is Brexit on deep freeze, or can the deadlock thaw?
1 February, 2019
This week has been a busy one with the main focus, of course, being the UK parliamentary Brexit vote on Tuesday. Ahead of the vote with the market excited that a deal could perhaps be reached, a no-deal Brexit was off the cards, or article 50 could be extended we saw GBP>EUR rates push to a 9-month high and GBP>USD rates (bar a small spike I January) close to the same.
The result on Tuesday has left a situation where if no concessions can be reached, particularly around the Irish border backstop issue, than no extension would be granted and as such the possibility of a no-deal Brexit is back on the table.
As a result of this, and the return of increased uncertainty we have seen rates tail off in the past few days – GBP>EUR lost over 1% from the highs seen earlier in the week. Whilst we did see a brief recovery yesterday, it does seem like the market sentiment has changed, as the prospect of a no-deal has become a potential reality, as we now wait to see which side will yield first in the hopes of achieving a deal.
What is certain is that downside risk has increased again, and with 2-months to go the risk of rates dropping in this period is increasing, so long as we stay in limbo and uncertainty prevails. Some might say that Feb 13th may offer a glimmer of hope as Theresa May returns to parliament to once again put down an amendable notion, and so could get the required power to delay Brexit. However, as the clock ticks and with the ball seemingly in the EU’s court, it is a huge risk to take waiting to secure currency, as we could easily see rates continue to slip as the chances of a no-deal Brexit increase.
Whilst Brexit does remain the driving force of market movements at present, we do have some data out today – EUR inflation data at 10.00AM, US Earnings at 13.30PM and ISM Manufacturing PMI at 15.00PM.
Should you have any upcoming transfer requirements speak to your Currency Index Consultant today, who can offer some guidance in how to remove much of the risk we currently see and help to protect your budget in this turbulent time.