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Downsides of March

Writings on the wall

The margin of defeat was narrower at 149 but the result was the same for Theresa May's EU withdrawal agreement yesterday as it had been two months ago. Investors could see the writing on the wall as soon as the attorney general released his legal opinion and they marked down sterling emphatically.

In a triumph of hope over experience, Monday's sterling rally had been driven by optimism that a rewording of the Irish backstop would allow parliament to support Theresa May's deal. That euphoria came to an abrupt end when investors discovered yesterday morning that the attorney general still saw a possibility that Britain could be trapped in the backstop against its will. They saw it as fatal to the bill's chances and knocked a swift cent and a half off sterling's value. 

The pound rebounded from its lows but it was still looking unloved when the Commons divided. Because the result was in line with expectations it had little impact on the currency. Sterling bagged its second wooden spoon in three days with an average loss of 0.9%.  It gave up one US cent and one and a quarter euro cents. 

Risk off

As the sterling mood changed, so did overall sentiment among investors. The pound and the Swiss franc swapped ends as safe-havens regained their popularity. The Swissy led the field, a cent and a half ahead of sterling.  Lower-than-expected US inflation contributed to the shift.

US consumer prices rose by 1.5% in the year to January, less than the forecast 1.6%. Core prices excluding food and energy also rose by less than expected.   

The UK data were mixed. Manufacturing and industrial production increased by 0.8% and 0.6% respectively in January, beating forecasts that they would be unchanged on the month. The trade deficit at £3.8bn was wider than expected. Gross domestic product expanded by 0.5% over the month, an achievement that is unlikely to have been repeated in February. The data mattered not a jot to the pound.

Another day, another vote

With 16 long days remaining until Britain's scheduled departure from the EU MPs will fill their time today with another Brexit vote, this one to prevent leaving without a deal. Ironically, even if successful it will not be sufficient in itself to prevent a no-deal Brexit.

Whilst yesterday's vote closed off one avenue it did nothing to clarify the end result of the Brexit process. The uncertainty remains, with the BBC helpfully setting out a flowchart showing the possibilities.

In the near term it is futile to speculate what might happen to the value of sterling, other than to note that a soft - or no - Brexit would be positive for the pound while a no-deal outcome would have its legs off and usher in a long period of weakness. As in a multi-episode TV cookery show, the outcome of each step will be revealed only after a long pause to heighten the tension.

GBP Legal opinion flattens sterling

GBP Legal opinion flattens sterling

USD Average performance after inflation misses target

USD Average performance after inflation misses target

CHF Renewed safe haven demand takes franc ahead

CHF Renewed safe haven demand takes franc ahead

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