Pound strengthens as MP’s overwhelmingly back Brexit bill

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9 February 2017

Written by
Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

With the economic calendar essentially barren on Wednesday, currency markets spent much of trading treading water.

T
he Pound rose modestly for another day against the US Dollar, buoyed by Tuesday’s relatively hawkish comments from Bank of England member Kristin Forbes. Forbes suggested that policymakers in the UK could hike interest rates soon if economic growth remains solid and inflation accelerates.

These hawkish comments helped reverse much of the recent selling in Sterling amid the Parliamentary debate over the government’s Brexit bill. There was little reaction to last night’s news that MPs overwhelmingly voted in favour of the Brexit bill, which will enable government to begin the UK’s departure from the EU.

The draft legislation was voted for by 494 votes to 122 and will now go to the House of Lords on 20 February. Investors are becoming less concerned about the timing of Article 50, and more on the impact the departure from the European Union will have on the UK economy.

Elsewhere, oil prices rose sharply over the course of the day, ending around 1.5% higher after a drop in US gasoline stockpiles offset a massive crude inventory bill. This provided a healthy boost to commodity currencies across the board, with the Russian Ruble and South African Rand ending the session as two of the best performers. The Reserve Bank of New Zealand also kept its interest rate unchanged as expected last night.

Political news continues to be the main driver in the FX markets. With no economic data releases today, traders will look to speeches from two Federal Reserve member’s this evening.

Major currencies in detail

GBP

Sterling rose 0.4% during London trading on Wednesday, supported by Forbes’ comments from earlier in the week.

Bank of England policymaker and Deputy Governor Jon Cunliffe spoke on Wednesday, the second rate-setter to speak in consecutive days. Cunliffe was slightly less optimistic on the health of the UK economy than Forbes, highlighting business investment in the UK was likely to remain “very weak” before picking up. In pre-written remarks, he reiterated that the BoE will look closely at the labour market, consumption and inflation expectations before deciding on the future path of monetary policy.

Brexit news continues to be a main driving force behind Sterling. Bank of England Governor Mark Carney will also be speaking this evening.

EUR

The Euro recovered from more than a one week low against the Dollar yesterday, although remains down for the week on political concerns ahead of France’s upcoming Presidential election.

There were no significant economic data releases out of the Eurozone yesterday. There was, however, some positive news out of the Organisation for Economic Co-operation and Development that reinforced the idea that growth in both Germany and France appear to be picking up pace. The latest growth index from the OECD for Germany increased modestly to 100.5 from 100.3, with France’s indicator rising 0.1 to 100.6.

Trade balance data out of Germany this morning is expected to show a modest decline in the country’s currently sizable trade surplus. The Euro looks stuck in the 1.06-1.08 range at present, absent any additional news from the Trump administration or monetary policy changes from either the ECB or Federal Reserve.

USD

The US Dollar index fell 0.5% on Wednesday, with the currency continuing to struggle under the weight of President Donald Trump’s ill-defined trade and fiscal policies.

With no major economic data releases, the fall in the US Dollar was primarily driven by a decline in treasury yields. The decline in Treasury yields in the US can largely be attributed to investors pricing out the chances of a rate hike by the Federal Reserve next month following the growing uncertainty created under Donald Trump’s economic policies.

Federal Reserve member’s Bullard and Evans will both be making public appearances in the US this afternoon.

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