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Soft Brexit dream lures sterling buyers

Government defeated: sterling higher

As traders in London tidied their desks at the end of Wednesday's session the global media were couching their daily summaries along the lines of "Pound languishes as hopes fade for Brexit progress". That whole line of reasoning was upended by a vote in the House of Lords.

The Lords passed a cross-party amendment to a trade bill, which requires the government to join a customs union with Europe after Britain leaves the EU. On its own the amendment is not binding: it must be approved by the Commons. Parliament has been there before, and the Lords were defeated by the Commons. However, yesterday evening's vote was yet another expression of parliament's opposition to no-deal and, perhaps, a step further along the path towards what was once referred to as a soft Brexit.

The vote helped restore investors' confidence in the idea of another government defeat for Theresa May's withdrawal bill on Tuesday, the rejection of a no-deal Brexit on Wednesday and an extension to Article 50 on Thursday. Sterling picked itself up and moved to the head of the field overnight. It is an average of 0.3% firmer on the day with gains of half a US cent and a third of a euro cent.

North American issues

Neither the US nor the Canadian dollar had a great day. The Greenback was more embarrassed than hurt by a widening of the US trade deficit. The Loonie was blitzed by a Bank of Canada policy statement that was too dovish for comfort.

As generally anticipated, America's trade deficit increased to a ten-year high in 2018, the year in which the president fired the opening shots in a trade war with China that was supposed to be "good, and easy to win". Ironically, it was the success of Trump's economic stimulus that drove imports to increase more quickly than exports, making his pledge to reduce the deficit that much less achievable.

Up north, the Bank of Canada kept its  target for the overnight rate unchanged at 1.75%. That was not a problem but the wording of the statement was. The last sentence noted "increased uncertainty about the timing of future rate increases", encouraging investors to wonder if there will even be on in the foreseeable future. The Loonie dropped a cent there and then, and is a cent and a half lower on the day.

ECB and North American jobs

Today's highest-profile data are the euro zone gross domestic product numbers for the fourth quarter. The top-billed event is the European Central Bank president's press conference after lunch. Tomorrow it will be the US and Canadian employment figures that command investors' attention.

The revised Euroland GDP ought to be in line with forecast; quarterly and annual growth of 0.2% and 1.2% are assumed. It is also likely that the ECB will lower its growth forecasts and float the idea of fresh stimulus. The euro's day will depend on how, and by how much, the central bank intends to crank out the money.

Tomorrow's employment data are forecast to show a 180-185k increase in US nonfarm payrolls while Canadian jobs remain roughly unchanged. Both numbers are important to their respective currencies, the Canadian figure arguably more so in view of yesterday's comment by the BoC.

GBP Lords amendment makes sterling's day

GBP Lords amendment makes sterling's day

USD Trade war ineffective in narrowing US deficit

USD Trade war ineffective in narrowing US deficit

CAD Dovish BoC comments wound the Loonie

CAD Dovish BoC comments wound the Loonie

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