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Daily Exchange Market Report March 11, 2019
Kathy Lien, Managing Director of Foreign Exchange Strategy for BK Asset Management.
Nothing is more important this week than the Brexit votes on Tuesday, Wednesday and possibly Thursday. There is no exact time for voting but it will be after the debates, which usually end in the evening in the UK. This puts a vote somewhere after 18/19 GMT or 2 pm / 3 pm New York time. This could be even later, but this should not be earlier than 6 pm GMT. This week's vote will determine 3 things:
- Will the United Kingdom accept the withdrawal agreement from the EU?
- Will the United Kingdom exclude departures without agreement?
- Will Article 50 be extended?
For the vote, there are only 2 results – Members of Parliament will choose to support the withdrawal agreement or reject it. If they agree to this agreement, the strategy of Theresa May will be justified, the UK will leave the EU on March 29 and will skyrocket for no other reason than a certain outcome. Although we can see a rapid rise of 1 to 2%, it may be difficult to maintain earnings as investors focus on the consequences of the exit of the European Union, in the absence of Permanent commercial agreements and challenges that the UK will have to negotiate from an isolated position.
What will probably happen, however, is MEPs will cancel the agreement. It has already been reported that May's cabinet rejected the latest proposals for EU support. May has not been able to convince the EU to change the terms of Irish support and it is unlikely that she will get enough MPs to accept the current agreement. If the withdrawal agreement is rejected, May will hold a vote Wednesday on whether the UK should leave the EU without any agreement. She insisted that no agreement is better than a bad agreement and that, if members are of the same opinion, there are big problems. This would be the worst case scenario for the GBP. The Governor of the Bank of England had already warned us that a Brexit without an agreement could result in a 25% collapse of the GBP. Although we did not expect that to happen in the blink of an eye, the very reality of a The Brexit without agreement will be enough to send the GBP / USD down 2 to 4% in a few minutes.
Leaving without agreement is irresponsible. The GBP, which would have fallen on Tuesday after a rejection of the withdrawal bill, could rally briefly in this scenario, but then attention shifts to the next vote on Thursday whether Article 50 should be extended.
Now there is another possible result – that is that the agreement of retraction is rejected by a thin margin. In this case, May could go get Mary Hail and try another vote after the EU summit on March 22. This could lead to the technical exit without an agreement that the EU had previously mentioned, but whether it is technical or real, the sterling traders will not interpret an additional delay in the final decision as positive for the currency .
Meanwhile, retail sales were better than expected. rose 0.2% in January, which was only lighter than the 0% forecast; but spending rose 1.2%, which was double the expectations. Consumer demand started well in the first quarter and could be reinforced by higher wages. However, the economy is still shocked by the weakness of the end of the year and investors are not convinced that the outlook is good. is scheduled for Tuesday and the rise should lead to higher inflation. Unfortunately, the increase will not be enough: inflation is still very low and the CPI is well below 2% year-on-year.
We continue to search 1.10 in. Monday's economic reports reinforce the central bank's concerns about weaker growth. The Germans fell -0.8% in January, stagnant, resulting in a smaller increase than expected. The current account balance also declined as difficulties in the auto sector impacted the results of the beginning of the year. The ECB made it clear last week that TLTRO 3 was a form of accommodation and it was willing to do more if Brexit were disrupting or global growth slowed further. The gap between US and German yields widening, the decline in the EUR / USD.
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