Article 50 Extension Surprise

Yesterday the pound weakened throughout the course of the afternoon as traders and investors re-positioned themselves on the probability of a no deal Brexit, with many of the major banks and respected analysts increasing the probability of this outcome. Sterling dropped to the 1.3000 support level against the US Dollar and 1.1500 against the Euro.

UK

However, the Pound bounced back overnight after the EU granted a conditional extension to article 50 until the 22nd of May should the Prime Minister manage to get her deal agreed in the House of Commons before the 12th of April. An extension from the 29thMarch that gives the PM an extra two weeks to try and gather the support required to get MV3 agreed by the UK parliament.  Key to note here that the extension still leaves all options open in the weeks and months ahead, there could still be Theresa May’s deal, no deal or no Brexit at all. Accordingly, volatility looks set to remain.

The Bank of England left interest rates unchanged at 0.75% and made no other changes to monetary policy. The MPC did however again state that the continued Brexit uncertainty and the extension into the summer is holding the economy back.

Euro

The Euro weakened across a basket of currencies yesterday hindered by poor consumer confidence numbers for the month and has come under further pressure this morning following the release of French Services and French and German manufacturing numbers coming in below the important 50 level signalling contraction from purchasing managers.

US Dollar

The US Dollar had a strong day yesterday, as the market ignored the FED outlook of patience and concern over economic growth.  The currency was supported by a strong demand to buy the currency as its status as a “safe-haven” continued to show. Initial jobless claims for the first half of March were lower than expected, helping the Dollar hold on to its gains.

The day ahead

As there is no fundamental data from the UK today, one can expect the direction of Sterling to be driven by headlines and traders squaring up their books before the weekend.

The focus for today for the Dollar will be the PMI surveys and existing home sales numbers.

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