Indicating a Way Forward

The kiwi dollar tumbles after a dovish RBNZ meeting ahead of Parliament’s indicative Brexit votes this evening.

Previous Day's Market Highlights

The kiwi dollar has been the major mover of the last 24 hours, tumbling by more than 1.5% overnight in the aftermath of the Reserve Bank of New Zealand’s (RBNZ) latest monetary policy decision. Despite rates being kept unchanged at a record-low of 1.75%, the RBNZ indicated that the next move in rates is “likely down”, pointing to continued sluggish core inflation and a global economic slowdown as reasons for continuing expansionary monetary policy. The dovish move caught markets by surprise, especially after relatively resilient GDP numbers last week, with OIS markets now fully pricing a rate cut by November, and indicating a 72% chance of a cut by August. The RBNZ’s shift to an easing bias has now put pressure on the RBA to follow suit and loosen policy, causing the Aussie dollar to decline by around 0.4% overnight. 

Elsewhere, Britain’s divorce from the EU continues, though there was little in the way of news on Tuesday. Reports that some eurosceptic Conservative MPs were softening their stance helped the pound find some support, with sterling adding around 0.2% over the day. In contrast, the euro dipped by around 0.25%, reversing the gains made after positive German business sentiment data. Despite a miss in housing starts and building permits data, the US dollar held steady, gaining less than 0.1%. Meanwhile, the yen struggled, losing around 0.5%, as investors’ risk appetite improved and safe-havens saw less demand. 

In other markets, improved investor risk appetite helped equity markets on both sides of the Atlantic. The pan-European Stoxx 600 gained 0.8%, with the US benchmark S&P 500 adding just under 0.75%. Finally, commodity prices continued to firm as supply cuts underpinned prices. Global benchmark Brent added 0.9%, while US WTI added 1.9% - briefly trading above the $60bbl mark.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1720 1.1803 1.1463 2.88%
GBP/USD 1.3185 1.3381 1.2939 3.30%
EUR/USD 1.1250 1.1448 1.1176 2.38%
GBP/AUD 1.8580 1.8851 1.8338 2.72%
GBP/NZD 1.9390 1.9542 1.8960 2.98%
GBP/CAD 1.7650 1.7795 1.7328 2.62%

Today's Market Highlights

Today’s focus will once again lie in Westminster as Parliament hold a series of indicative votes on the way forward with Brexit. MPs will begin voting at around 7pm on a series of options, including the Prime Minister’s deal, a customs union, leaving without a deal and several others, with the final choice of options decided by the Speaker. The results of the votes should be announced later in the evening, with MPs voting ‘yes’ or ‘no’ for each option rather than ranking them in order of preference. However, it is unlikely that a majority for any single option will be reached this evening, hence further votes will be held next Monday in a run-off between the most popular options. It is likely that lawmakers will tilt towards a ‘softer’ Brexit than is currently on the table, an outcome that would likely support sterling despite the requirement for a longer Article 50 extension. 

Also in Westminster today, the Prime Minister will meet her backbench MPs this afternoon, with reports that she will announce her resignation plans. This would likely be in a final effort to muster support for the Withdrawal Agreement to be approved in Parliament this week. 

The economic data calendar is light, with no notable numbers due from either the UK or the eurozone. Markets will be able to chew over the Swiss economic expectations survey this morning, though it is likely to paint a relatively pessimistic picture. The afternoon session is dominated by trade data, with figures due from both the US and Canada. The figures are both for January however, so are likely to have limited impact on markets. 

Of more interest will be the multitude of central bank speakers, especially from the ECB. President Draghi is due to speak at 8 o’clock this morning, with his policy-making colleagues Lautenschlager, de Guindos and Mersch also due to speak throughout the day. From the Fed, focus will lie with usually hawkish voter George, as markets continue to assess the Fed’s dovish U-turn last week.

Today's Economic Calendar

Time Currency Release Consensus Previous
08:00 EUR ECB President Draghi Speech
12:30 USD Trade Balance (Jan) -57.0bln -59.8bln
12:30 CAD Trade Balance -3.5bln -4.6bln
Approx. 19:00 GBP Parliamentary Indicative Votes on Brexit Next Steps