Currency Markets Wait Nervously for Second Brexit Vote

. 3 min read

OVERVIEW

  • The US dollar is trading relatively softer vis-à-vis the G-10 currencies as retail sales eked out tiny gains.
  • GBP/USD waits in the 1.30 zone as investors look to new parliament vote
  • NYMEX WTI Crude rises 1.40% and supporting commodity-related currencies.

Highlight

The British Pound is waiting for the outcome of the second meaningful vote and investors; businesses are hoping for more clarity on the painful divorce process. Though the GBP/USD has recorded gains over the past two months, the pair remains vulnerable to wild volatility. Tomorrow’s event risk could trigger a choppy session and the political chaos is likely to weigh on sentiment.

US DOLLAR

The US dollar is trading with a relatively softer tone against its major peers on the first trading day of the week. Headline US employment data surprised many in the markets last Friday and this morning data from the Census Bureau showed retail sales grew 0.2% from the previous month.

The Fed remains “data-dependent” and not in a “hurry” to change its gears. Meanwhile, currency markets are expected to move out of the Goldilocks zone with Brexit taking centre stage. Speculations are running high and wild as the outcome of the second meaningful vote could trigger a series of events with global impact. WTI is trading higher and lending an extra boost to commodity-linked currencies.

BRITISH POUND

GBP/USD is oscillating around the 1.3000 handle as market waits for the House of Commons to vote on a revised Brexit deal. A report published by European Scrutiny Committee today highlighted the fact that “internal Government divisions have hamstrung its ability” to deal effectively with the EU. We expect the pair to travel through choppy sessions before tomorrow’s key meaningful vote.

EURO

EUR/USD is trading 0.15% higher this morning as the pair continues to recover from recent lows. German industrial output came below expectations, to once again reconfirm that the euro bloc needs more time and support (fiscal and monetary). ECB announced a new stimulus package last Thursday whilst extending its commitment to low rates till end of the year. The next directional move of the pair will be likely determined by development surrounding the Brexit vote.

CANADIAN DOLLAR

USD/CAD is holding above the 1.34 handle after clocking its highest level in two months. A dovish hold on interest rates from the Bank of Canada and lower growth data weighed on the loonie. This morning, the pair is trading near Friday’s close, in a tight trading range.

AUSTRALIAN DOLLAR

The Australian dollar is moving higher, currently 0.3% up against the greenback. The recent move comes mainly on the back of a surprising lower than expected headline US NFP number. The AUD is also buoyed by expectations that the US and China are getting close to agree on a trade deal, a favourable outcome for the regional trading nations.

Risk-aversion sentiment is pulling the US dollar lower against the Japanese Yen. USD/JPY is down 0.1% since touching the highest last Tuesday. The market is looking towards the UK’s House of Commons with the second meaningful vote set to be tabled tomorrow. Its outcome could trigger a series of events with far-reaching consequences for the global economy. Meanwhile, preliminary reading showed February Machine Tool Orders fell 29.3% year over year but failed to sway investors away from safe-haven JPY.

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