Groundhog Day

The Prime Minister proposes another new Brexit deal, which is immediately met with stiff opposition exerting further downward pressure on the pound.

Previous Day's Market Highlights

Sterling closed modestly lower on Tuesday, erasing gains of almost 0.75% after the Prime Minister’s new offer on Brexit left markets, and MPs, unimpressed. Sterling’s early gain was after reports broke that the Prime Minister was prepared to offer MPs a free vote on whether to hold a 2nd referendum. Despite these reports holding water, it was a case of ‘buy the rumour, sell the fact’ for markets, with the pound quickly reversing gains once PM May confirmed such a vote would take place. Other measures in the new offer, aimed at pleasing various different factions in Parliament, include legislation giving Parliament a bigger say in future trading negotiations in addition to legislating to ensure workers rights are guaranteed post-Brexit. However, the speech aimed at pleasing everyone seemed to please nobody, with opposition MPs continuing to reject the deal, and Tory MPs who backed the deal last time switching back to rejecting it again. The government now seem to run the risk of the Withdrawal Agreement being defeated by a bigger margin that at the end of March - if the Bill actually makes its way to Parliament. For the markets, the increased uncertainty provided yet another headwind to the pound, which sank by around 0.2% against both the dollar and euro over the course of the day. While the vote on a second referendum provides an upside tail risk for the pound, the likely defeat of the Bill and a lack of a roadmap for the next steps will exert downward pressure on sterling. 
 
Elsewhere, volatility was relatively limited, with a lack of major economic releases from across the G10 FX landscape. Consumer confidence figures from the eurozone rose to their highest level since November 2018, though remained firmly in pessimistic territory with an index reading of -6.5, exemplifying the fragile state of European consumers. The euro largely shrugged off the release, closing around 0.1% lower. The greenback similarly meandered, ignoring a fall in existing home sales to their lowest level this year, to gain around 0.15% against a basket of peers. To find more significant moves, one must turn to the antipodeans, with both the Aussie and Kiwi dollars falling around 0.4% after dovish comments from the Reserve Bank of Australia laid the ground for a rate cut. The overnight release of Q1 retail sales from New Zealand, showing an above-forecast quarterly increase of 0.7%, did little to halt the Kiwi’s slide. 
 
In other markets, equities on both sides of the Atlantic gained after the US temporarily relaxed restrictions on the sale and use of Huawei products, the latest escalation of US-China trade tensions. In Europe, the pan-continental Stoxx 600 added 0.5%, while the US benchmark S&P 500 gained around 0.9%. Finally, oil prices traded relatively unchanged, with rallies on supply concerns stemming from tensions in Iran capped by ongoing trade jitters.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1365 1.1776 1.1360 3.53%
GBP/USD 1.2680 1.3176 1.2673 3.82%
EUR/USD 1.1155 1.1265 1.1110 1.38%
GBP/AUD 1.8430 1.8882 1.8240 3.40%
GBP/NZD 1.9510 2.0021 1.9340 3.40%
GBP/CAD 1.6996 1.7728 1.6994 4.14%

Today's Market Highlights

Today sees a number of key economic releases for markets to chew over, while focus will remain on the ongoing issues of US-China trade and Brexit. 
 
For the pound, while market participants will keep one eye on Westminster and the fallout from yesterday’s ‘new offer’ on Brexit, April’s CPI inflation figures will also be eyed. Markets expect CPI to have increased at 2.2% on a year-on-year basis, a level that would see inflation above the BoE’s 2% target for the 1st time this year, and the highest rate of price increases since November 2018. However, a note of caution is needed, with the expected steep increase in the headline figure likely to be due to rising oil prices. This should be reflected in the core CPI measure, expected to increase at 1.9% year-on-year, just 0.1% higher than previously. While an above forecast release may see sterling find some support, any rallies are likely to be capped by continued Brexit-linked uncertainty, while the release is also unlikely to impact the BoE’s monetary policy, with the Bank seemingly on hold until after the UK’s departure from the EU. In Brexit-land, the Prime Minister is due to face up to 3 hours of questioning in Parliament on yesterday’s new Brexit offer, while also facing ever-intensifying calls to quit from within the Conservative Party.
 
Meanwhile, from the US, markets will be watching this evening’s release of minutes from the Federal Reserve’s May policy meeting, where rates were maintained at 2.25%-2.5%. The minutes are likely to set a relatively neutral tone, indicating the Fed’s patience when determining future policy changes. The release is also expected to remark that benign inflation is due to transitory factors, in addition to indicating the Fed are likely to keep interest rates on hold for the foreseeable future to continue to support economic expansion. The latter point is at odds with the current aggressive market pricing, with futures contracts assigning a 69% chance of a 25bps rate cut this year. A significant shift in these expectations to price out a cut, perhaps more likely after the Fed’s next meeting in June, would see the dollar find some demand. The Fed’s Bostic, a non-voting member, will also speak today, though any market reaction to the speech should be muted. 
 
Staying in North America, today also sees the release of March retail sales figures from Canada. Though the data is more than slightly out of date, the release should give markets a good gauge on the health of the Canadian consumer, ahead of next week’s 1st quarter GDP release. Markets expect retail sales to have increased at 1.1% in March, with the less-volatile core measure (which excludes auto sales) set to have increased at 0.9%. An as-expected release would see both measures recording the fastest pace of increases since May 2018, while also evidencing resilient consumer spending, likely boosting economic growth. 
 
Finally, in the eurozone, little in the way of data is due, though markets will look to this morning’s speeches from ECB President Draghi and outgoing ECB Chief Economist Praet for any hints of future monetary policy changes.

Today's Economic Calendar

Time Currency Release Consensus Previous
9:30am GBP CPI (y/y - Apr) 2.2% 1.9%
1:30pm CAD Retail Sales (m/m - Mar) 1.1% 0.8%
1:30pm CAD Retail Sales ex. Autos (m/m - Mar) 0.9% 0.6%
7:00pm USD FOMC Meeting Minutes