Further gains for sterling

Sterling has strengthened significantly following developments in the UK parliament yesterday, rising to its highest level since late 2017 against the euro at just under 86p and climbing to well over $1.32 against the dollar. The euro, meanwhile, is a little firmer against the US  currency at almost $1.14 but is still struggling to maker a decisive move higher, having attempted to do so on a couple of occasions since the start of 2019 with just over $1.1550 the high year to date

The UK Prime Minister, Theresa May, has informed MPs that she will bring her Brexit deal back to parliament for a meaningful vote on March 12th. If it is again defeated, MPs will get a chance to vote for or against leaving the EU without a deal the following day (March 13th). If MPs vote against leaving the EU without a deal, they will then get the chance to vote for an extension of Article 50 on March 14th. The PM has suggested a “short” extension of 3 months to the end of June, adding that any extension is likely to be a “one-off”

While the chances of a no deal Brexit at the end of March seem to have receded – hence the rise in sterling – an extension of Article 50 just moves the potential “cliff edge” a few months down the road, as a number of MPs noted yesterday. Also, while we know that MPs are against the only Brexit deal currently on the table, and are also against leaving the EU without a deal, we still have little or no idea what type of Brexit they do favour and so what form Brexit will take (and indeed who will ultimately decide)

ECB Executive Board member and outgoing Government of the Central Bank of Ireland Philip Lane noted yesterday that slower growth in the Euro area means of slower rate of monetary policy normalisation, which the market has already taken on board by pushing out the expected timing of any first increase in interest rates

Data due today includes the European Commission’s latest Economic Sentiment Indicator for the Euro Area, which has fallen for 7 consecutive months up to January, and consumer confidence in the UK