Sterling rallies as prospect of no-deal Brexit fades

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4 March 2019


The only clear theme in a week of very mixed currency moves was the continuation of the relief rally in Sterling.

rime Minister May announced that she would allow Parliament to vote on whether to request an extension of the 29th March deadline if her deal is rejected again on 12th March. This seems to minimise the chances of a ‘no deal’ Brexit and Sterling reacted by taking on another 2% rise against the Dollar. Most other G10 currencies remain range bound.

This week, the ECB March meeting on Thursday looms large. On Friday, the US payrolls report for February should also bring about some volatility. As always, unpredictable political headlines from the US-China trade talks and the Brexit negotiations should keep traders on their toes.

Major currencies in detail


Though macroeconomic data out last week in the UK was unarguably weak, FX markets continue to focus exclusively on Brexit and the likelihood of a no-deal outcome. This becomes considerably less likely to happen after May agreed to let Parliament vote on whether to support a no deal if her deal fails on 12th March. Oddsmakers now place a one in six chance of this happening, down from 35% just a couple of weeks ago. Sterling has naturally reacted well, though we think the rally is likely to pause until further news are out or the March votes take place.

The PMI indices of business activity for services is out on Tuesday this week, although we continue to expect Brexit headlines to be the main driver for the Pound.


The dip in core Eurozone inflation to 1.0% and recent disappointment in economic data cannot have been welcomed by the ECB. The key for the common currency will be the extent to which the central bank revises its growth and inflation estimates downward at its March meeting on Thursday.

We do, however, note that markets are already pricing in a significantly dovish turn, and that the differential with US 1-year rates is hovering around year lows given that a similar turn has taken place in the US. Therefore, we would pay more attention to macroeconomic data such as German, French and Italian industrial figures to ascertain whether the recent weakness is cyclical or just due to one-off factors.


The release of the Fed’s Beige Book and a couple of speeches by Fed officials on Wednesday, together with the release of the February payrolls report on Friday will be the two key data events this week.

Of even greater importance, however, are the rumours currently swirling that a deal between the US and China on tariffs is in the offing. If confirmed, this would mean that the current environment of low US rates, steady growth, and the removal of the threat of global trade wars is particularly conducive to strength in emerging market currencies.