Cross-party Brexit talks fail, May to set departure timeline

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17 May 2019

thomasdodds

Sterling continued to be pressured lower against its major peers this morning, falling back below the 1.28 mark against the US Dollar on signs that cross-party talks between the Conservatives and Labour Party are set to conclude without a resolution.

I
n a highly unsurprising report from the BBC, both parties will now work together in order to agree on a process to find a consensus within the House of Commons. Labour is certain to push for a general election and is highly likely to renew calls for a second referendum. Pressure on Theresa May’s position as Tory leader has also never been higher. Regardless of whether or not MPs dismiss her withdrawal agreement for a fourth time next month, the PM has stated that the process to appoint her successor will begin.

The possibility of new Conservative leadership, combined with the uncertain prospect of a general election, could ensure that Sterling has further to fall in the coming weeks. If, however, the markets begin to view a second referendum as increasingly likely, the Pound could actually react favourably, given that another vote would present a 50/50 chance that the UK actually remains in the EU after all.

The lack of a more pronounced sell-off in the Pound off the back of this morning’s news can largely be attributed to the fact that the market had heavily expected such an outcome. Despite six weeks of talks, positive headlines out of the discussions were scarce and hopes of an imminent resolution to the Brexit impasse are very low.

Euro slides on Savini comments, strong US data

Comments from Italian Deputy Prime Minister Salvini and some solid US housing numbers have driven much of the volatility in the EUR/USD in the past 24 hours, with the Euro falling back below the 1.12 mark versus the USD this morning.

Salvini raised fresh concerns over the relationship between the Eurozone’s third largest economy and the European Union, stating that Italy would ‘tear apart’ EU budget rules should his party do well at next week’s European parliament elections. Next week’s EP elections have gone somewhat under the radar, although could have an impact on the FX markets should populist parties perform better-than-expected.

Meanwhile, this morning’s headline inflation number for the Eurozone was revised upwards to 1.3% year-on-year from 1.2%, although the market reaction was limited. Macroeconomic news out the rest of today will be second-tier at best, with traders attention firmly on geopolitical and Brexit news.