· The pound edged up on Wednesday after turbulence following the defeat of British Prime Minister Theresa May’s European Union exit deal, but investors braced for more volatility ahead of additional Brexit proceedings.
The British Parliament on Tuesday rejected May’s deal to quit the European Union for a second time, deepening the country’s political crisis days before the planned departure date on March 29.
Lawmakers will now vote later on Wednesday on whether Britain should quit the world’s biggest trading bloc without a deal. If such a “no-deal” exit plan is rejected, another vote will be held on Thursday on whether to extend the March 29 departure date.
· The parliament is likely to reject a ‘no-deal Brexit’ plan, and the March 29 exit date subsequently being extended now looks to be a distinct possibility.
The pound is thus stabilizing on such expectations for now, ” said Takuya Kanda, general manager at Gaitame.Com Research Institute.
“Considering how sensitive the pound is to headlines, we could see the currency gyrate again if the door is opened for an extension of the March 29 exit deadline.”
· Sterling was up 0.2 percent at $1.3089 and stuck to a narrow range. The currency had lost 0.65 percent the previous day, when it fluctuated widely between $1.3290 and $1.3005.
· “Even if Britain decides to extend the Brexit deadline, the question will shift quickly to the length of the extension it desires and what it plans to accomplish within that period,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.
“Without an acceptable plan, Britain might have a difficult time convincing European leaders at the EU summit next week, forcing market participants to reverse their positions on the pound and again exposing the currency to sudden downturns.”
· The EU’s 28 government leaders will decide at a March 21-22 summit whether to extend the negotiating period beyond the current exit date on March 29.
· The dollar was on the back foot after data on Tuesday showed U.S. consumer prices rose at a slower-than-expected pace, nudging Treasury yields to two-month lows.
The dollar index against a basket of six major currencies was little changed at 96.992 after losing 0.3 percent overnight.
The euro was a touch lower at $1.1283 after rising 0.4 percent the previous day as the greenback sagged on the lacklustre U.S. inflation data.
· Experts say that two currencies stand out as being the most exposed to China: the Australian dollar and the New Zealand dollar.
That’s because China is the biggest trading partner to both commodity-producing countries.
Flattening demand from China — the world’s top consumer of iron ore — is also set to weigh on Australia, the world’s top iron ore exporter.
Other currencies that are under pressure from Chinese economic concerns would include the Canadian dollar, Malaysian ringgit, Indonesian rupiah, and Singapore dollar.
· EUR/USD Watching US Durable Goods and Vote on No-Deal Brexit
February’s US headline and core CPI undershot forecasts, subsequently sending the US Dollar-weighted index (DXY) lower while EUR/USD and S&P500 futures gained. US economic data has been broadly falling short of expectations according to the Citi Economic Surprise Index since February. This perhaps gave additional impetus for the Fed to continue to remain relatively neutral and be “patient” with raising rates.
In the UK, Prime Minister Theresa May’s Brexit deal was overwhelmingly defeated in parliament for a second time with 391 against and 242 in favor. Sterling currency crosses subsequently plunged. Later today, the House of Commons will vote on a no-deal Brexit which could open the door for a second referendum or even no Brexit. There is also the possibility of an extending article 50 but that may come at a price of 39 billion GBP.
However, before the vote begins, traders may keep a peripheral view on Eurozone industrial production with their main focus likely on preliminary US durable goods orders for January. Estimates for the latter are currently pegged at -0.40 percent with the previous at 1.20. Slower global growth from the US-China trade spat along with increasing risk out of Europe may continue to weigh on risk appetite and make consumers less optimistic.
· USD/JPY Technical Analysis: Break below 111.11 could prove costly
USD/JPY dived out of the rising wedge pattern yesterday, signaling a resumption of the sell-off from the recent high of 112.14.
The drop, however, was cut short at 111.11 and the pair recovered to 111.40, neutralizing the immediate bearish setup.
In the last 12 hours, the pair has carved a lower high along 111.40 and is now trading at 111.20. A break below 111.11 would revive the bearish view put forward by the rising wedge breakdown, confirmed yesterday and would open the doors to 110.75 (low of the rising wedge).
On the higher side, a convincing break above 110.47 is needed to confirm bullish revival. That looks unlikely though as the US 10-year treasury yield fell to over two-month lows yesterday. Further, at press time, the Asian equities are reporting losses.
· Japan’s machinery orders fell in January at the fastest pace in four months as the U.S.-China tariff war hit global trade, knocking demand from the country’s auto and telecommunications equipment manufacturing sectors lower.
The 5.4 percent decline month-on-month in core machinery orders, a leading indicator of capital expenditure, was more than the median estimate for a 1.7 percent decrease and followed a revised 0.3 percent decline in the previous month. It was also the fastest month-on-month decline since September last year.
· Oil prices rose on Wednesday, pushed up by ongoing supply cuts from producer group OPEC and by U.S. sanctions against Iran and Venezuela.
International Brent crude oil futures were at $66.95 a barrel at 0751 GMT, up 28 cents, or 0.4 percent, from their last close.
U.S. West Texas Intermediate (WTI) crude futures were at $57.23 per barrel, up 36 cents, or 0.6 percent, from their last settlement.
Reference: Reuters, CNBC, FX Street
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