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The amazing oscillating pound

Giving roller coasters a bad name

On Thursday and Friday sterling came close to extending its last-first-last Brexit-driven yoyo performance. Last place was accidentally stolen by the South African rand on Thursday and Sweden's krona was the winner on Friday.

However, were one to argue that neither the rand nor the krona is a "major currency", the pound did indeed spend six consecutive days alternately leading the pack and bringing up the rear. And it was all down to the volatile sentiment surrounding the government's stumbling progress towards a Brexit deal. Or not.

The market appears to be disregarding the possibility of a no-deal Brexit, based on last Wednesday's vote in parliament to reject that outcome and Thursday's agreement to extend Article 50 beyond 29 March. But a suspicious soul would point out that neither of those votes has the force of law, and the default position remains that Britain leaves the EU in 11 days' time, with or without a deal. The recent cycle suggests that investors could fall in with that logic today and send the pound lower once again.

Third time lucky?

It might be undemocratic to allow the electorate a final say on the prime minister's withdrawal bill, but not apparently to send that bill back to parliament time after time. A third run is likely this week if Theresa May believes she has a chance. And what about a fourth, if the loss is only a narrow one?

About the only thing that can be said with certainty is that this week will not provide it. Even if the prime minister can squeeze her deal through the Commons - and send the pound higher - many questions will remain. The current process relates only to leaving the EU: it says nothing about the subsequent negotiations regarding Britain's long-term relationship with Europe.

It is not even a binary situation. Postponement of Article 50 would simply mean extended uncertainty. A referendum could go either way. Were parliament unilaterally to rescind Article 50, there would be a populist backlash. An accidental no-deal departure would have dire consequences.  With a whole world of possible bad outcomes still out there it is difficult to be unreservedly optimistic about sterling.

The small print

As battle rages in Westminster, the rest of the world does its best to get on with business as usual. US new home sales fall, NZ visitor arrivals rise, the Bank of Japan soldiers on in its futile pursuit of 2% inflation. But none of these can compete for oxygen with the insatiable Brexit behemoth.

With the exception of Rightmove's house price index - down 0.8% in the year to March - UK economic data were conspicuous by their absence. In the States jobless claims were more than expected, new home sales fell by a monthly 6.9%, industrial production increased by 0.1% in February after falling 0.4% the previous month, the Michigan index of consumer sentiment jumped four points to a provisional 97.8. In Euroland, inflation was a tick higher at 1.5%.

Today's agenda is brief. Japanese industrial production fell by a monthly 3.4% and all that remain are the euro zone balance of trade, Canadian international investment flows and the NAHB housing market index.  

GBP Sentiment swings back and forth

GBP Sentiment swings back and forth

USD Dogged by disappointing data

USD Dogged by disappointing data

EUR Inflation mostly steady

EUR Inflation mostly steady

JPY Unaffected by better trade figures

JPY Unaffected by better trade figures

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