Flextension

With the UK set the leave the EU on Friday, yesterday Theresa May held last-minute talks with Angela Merkel and Emmanuel Macron to further delay the Brexit leave date to 30th June. However, after the talks, Angela Merkel said that a delay to the start of 2020 was a possibility and a ‘flextension’ – a one-year flexible extension will also be discussed when all EU states meet today to vote on an extension.

President of the European Council, Donald Tusk has also written to EU leaders urging them to consider a flexible extension of up to one year, saying that he has little reason to believe that “the ratification process can be completed by June”. An extension has long been priced into the value of the pound and with so many member states taking view that a ‘no-deal’ will be too damaging, it seems very unlikely that the UK will leave on Friday. In the UK, there has been little decisive progress made in cross-party talks. With no progress the pound is likely to remain range-bound, however, if there are any signs that indicate an increased likelihood of a deal then the pound will likely increase in value against the euro as a result.

This being said, currency markets are notoriously difficult to predict, it is important to remember in these uncertain times that often doing nothing and taking the ‘wait and see’ approach to currency management ultimately represents the biggest risk. Fixing the exchange rate for part or all of your exposure is the best way to remove risk. Rates can be fixed for up to 2 years in advance.

Tuesday was light on the data front, today however there are a host of data releases to keep us occupied, though any results that are out of line with the expectations are likely to be muted in anticipation of developments on Brexit and the length of the extension.

09:30 am UK Gross Domestic Product (GDP) m/m. GDP is a measure of economic activity and a gauge of the economy’s health. The expected result is 0.2%, a better than expected result is normally positive for the currency.

09:30 am Manufacturing Production m/m. A leading indicator of economic health expected a result of 0.2%.

1:30 pm ECB Press conference
USD CPI data m/m

7 pm FOMC meeting minutes