Surging sterling as Brexit delay rumoured

The pound surges higher on rumours of a Brexit delay ahead of this week’s meaningful vote.

Previous Day's Market Highlights

Sterling was the best performing major currency on Friday, gaining over 1% against the euro and 0.8% against the dollar after an Evening Standard report that the government were planning to delay Brexit until after 29th March due to legislative deadlines that were unlikely to be met. Despite such reports being denied by the government, sterling continued its rise to trade at its best levels in over a month. Also helping the pound was a positive set of GDP data, which beat market expectations showing that the UK economy grew at 0.2% on a month-on-month basis, the fastest rate since September.
Elsewhere, the dollar gained around 0.5% across the board (barring sterling) after hitting several key support levels and an inflation report released in line with market expectations, showing CPI ticking up at 1.9% on a year-over-year basis. As a result of the dollar and sterling strength, other major currencies lost ground with the yen, Aussie and Kiwi dollars easing back to levels seen before last week’s flash crash.
In other asset classes, equities on both sides of the Atlantic lost ground with US markets snapping their 5 day winning streak. European bourses closed 0.4% lower though recorded gains of around 1% over the week, in the US markets closed flat but gained 2.5% over the course of the week. Finally, both Brent and WTI lost around 2% on Friday though were well on track to record gains of over 10% for the week.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1184 1.1207 1.1018 1.69%
GBP/USD 1.2837 1.2866 1.2440 3.31%
EUR/USD 1.1477 1.1570 1.1280 2.51%
GBP/AUD 1.7861 1.8190 1.7425 4.06%
GBP/NZD 1.8869 1.9025 1.8380 3.39%
GBP/CAD 1.7048 1.7392 1.6756 3.66%

Today's Market Highlights

Today’s economic calendar is lacking in significant, tier 1 data hence price action in major pairings is likely to be limited. The only highlight from today’s calendar is set to be eurozone industrial production figures for November, expected to show a decline of 1% on a month-over-month basis. Investors are likely to pay close attention to the figure, especially after production in Germany dropped at its sharpest level since summer 2015 last week. A miss to the downside today could add further fuel to the fire of fears over a global economic slowdown.
Elsewhere, market participants will continue to pay close attention to the ongoing government shutdown in the US, which has now become the longest on record. Thus far the impact on financial markets has been limited, however with no end to the stalemate in sight, the shutdown could begin to act as a headwind to the dollar. Today is also a bank holiday in Japan, hence liquidity in the Asian session will likely be lower than usual.
For the remainder of the week, the near-term direction of the pound will be largely determined by tomorrow’s meaningful vote on the Brexit withdrawal agreement. Currently, expectations are for the deal to fail in parliament however the number of MPs voting against the deal will be key for the next steps that the government will take. These could include, but are not limited to, further negotiations with the EU, an extension to the Article 50 period or even having to face a motion of no confidence put forward by the opposition Labour party.
In terms of economic data, the calendar remains relatively light with little US data expected because of the shutdown. Highlights include UK, eurozone and Canadian inflation figures on Wednesday, Thursday and Friday respectively as well as a number of speakers from the BoE, ECB and Fed throughout the week.

Today's Economic Calendar

Time Currency Release Consensus Previous
10:00am EUR Industrial Production (m/m) -1.0% 0.2%