A change of tack for Brexit

4 minute read


The dollar played a low-profile game on Tuesday. The only US economic data of any real consequence were February's durable goods orders and, unusually, they were mostly in line with analysts' forecasts. Overall, orders were down by 1.6%, close to the predicted 1.8% decline. Non-defense orders excluding aircraft were down by 0.1%, having been forecast to be unchanged.  

The trade war story continued to generate positive words from the media. Chinese vice premier Liu He will be in Washington today to pick up the talks that took place in Beijing last week and which, according to China, brought "new progress". 


The euro went nowhere during the London and New York's morning. It began to move higher in the afternoon when it became clear that Britain's prime minister might be preparing to abandon some of the infamous "red lines" that limit her flexibility in Brexit negotiations. It would be to Europe's benefit as well as Britain's if cross-party cooperation could engineer a "soft" Brexit including a customs union with the EU.

A further boost for the EUR came with this morning's euro zone purchasing managers' index readings. All but one of them came in better than expected. The only miss was the composite figure from Germany, which narrowly missed the mark at 51.4 thanks to the depressing manufacturing component. For euro zone services as a whole the figure was 53.3, half a point higher on the month and half a point above forecast. A 0.4% monthly increase for retail sales in February also helped. The EUR is 0.4% higher against the USD.


Canadian statistics played no part in the Loonie's fortunes. Even oil prices did not make themselves felt. The CAD retreated during the early New York session.

By the afternoon, however, the continuing upward progress of oil prices had attracted investors' attention. The 1.5% daily increase in the price of WTI crude was not itself massive but it led to a new five-month high, 48.5% above the lows seen in late December. That was worth 0.2% to the CAD against the USD.


Sterling began the day badly and ended it well. The rumors surrounding the prime minister's marathon seven-hour cabinet meeting suggested strongly that she was preparing to leave the EU without deal. It was reported later that 14 of the 24 ministers present did indeed favour that outcome. But not the prime minister. Following the meeting Theresa May stated her intention to reach out to the opposition in parliament in the hope of finding common ground.

Investors reacted positively to this new turn of events, which they believe could deliver a far softer Brexit, probably with Britain remaining in the EU customs union (for that is the stated wish of the opposition leader). They immediately marked sterling higher and it continued to gain ground overnight. This morning's weaker-than-expected services sector PMI was only a temporary hindrance and the GBP is 1.0% higher on the day.


There was but one Japanese economic statistic to shape the yen's day and investors did not like it. The services sector PMI was lower on the month and below forecast. At 52.0 for March it did not miss by much: down just 0.3 on the month and very close to the forecast 52.1. However, investors had been hoping for better.

The subsequent mark-down of the JPY was more of a slap on the wrist than a brutal punishment; about a third of a yen. It is a net 0.1% lower on the day against the USD.

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