The diminishing probability of a ‘no deal’ Brexit helped the pound make gains across the board last week. GBP/USD rates rose by a significant 2.5%, now sitting just below 1.32 on mid-market, whilst GBP/EUR rates shot up just over 2%, briefly breaking 1.16 before settling in the 1.15’s.
Reports that the Democratic Unionist Party (DUP) could support Theresa May’s Brexit deal, in tomorrows Parliamentary vote, fuelled talks of a ‘no deal’ Brexit being off the table. The Euro meanwhile struggled towards the end of last week after the ECB released a very cautious assessment of the current Eurozone economy.
The week ahead
GBP – Tomorrow is a huge day for the pound as Parliament meet once again to vote on the governments ‘plan B’ on Brexit. Theresa May will be presenting two new amendments to her original plan, hoping to get some more MP’s on her side. The most significant of these will be the Cooper-Boles amendment, which gives Parliament the power to force the government in to requesting a Brexit extension should a deal not be approved before 26th February. Should this amendment go through tomorrow then expect Sterling strength as the possibility of a ‘no deal’ becomes more unlikely. Manufacturing data out on Friday could also cause some short-term movement for the pound.
EUR – The big release of the week for the single currency comes in the form of Eurozone GDP, released on Thursday. Mario Draghi, President of the ECB, last week stated that growth across the Eurozone is expected to be weaker than first anticipated. This suggested that any possibility of a rate hike from the ECB this year could be pushed back, weakening the euro, therefore the first GDP reading of the year will be watched closely to get a feel for overall growth in the Eurozone.
USD – President Trump and Congress have finally reached an agreement to reopen government for three weeks, following a 35-day shutdown – the longest in U.S history. This agreement has weighed on the dollar as investor sentiment increases with this move and the demand to leave funds in this safe haven currency decline. The Fed will be releasing their interest rate decision this Thursday. Whilst this is widely expected to remain unchanged, any subsequent comments will be closely scrutinised for hints towards future monetary policy as it is rumoured the Fed could be looking to take a more cautious approach to future tightening. Non-Farm Payrolls out on Friday also has the potential to move USD crosses.