- Frex today was all about Brexit, but it did not turn out the way that the herd expected in terms of price action.
- Meanwhile, risk sentiment was relatively elevated given the overnight headlines about China’s stimulus plans for the Chinese economy.
Leading into the vote, markets were relatively calm, although cable slid sharply. However despite such a magnificent defeat for PM May in the House of Commons overnight where she lost the meaningful vote with a difference of yes at 202 to 432 in favour of the ‘No’s, sterling rallied from 1.2669 to a high of 1.2889. The thinking is that a no deal Brexit is out of the question, or at least, highly unlikely. As such, the downside for GBP is diminished, depending on what side of the market’s thinking that you are. Therefore, it would appear that the majority of the market is pricing in a higher probability of a softer or ditched-Brexit altogether.
On the other hand, should sentiment return for a disorderly Brexit, as the sand runs low in the hourglass, the pound could come under immense pressure again and it is over the next remaining days this week that we are going to be inundated with Brexit noise, so one should expect to see some more volatility. However, the support for a no deal Brexit appears quite low in parliament and, at this juncture, the case is building for a softer Brexit outcome where the UK opts to remain in the customs union, or calls for a fresh referendum. GBP/USD closed at 1.2859 in New York.
Elsewhere, risk was boosted by news that Chinese authorities will provide further stimulus through tax cuts. The euro fell from 1.1489 in Asia to a low of 1.1381 on Draghi’s dovish address to Parliament. USD/JPY was chopped its way through a tight 40 pip sideways range on the 108 handle and the Aussie was benefiting from the Chinese stimulus news initially before sinking from 0.7225 to a low of 0.7179 before moving back to the 0.72 handle in Asia.
Key notes from US session:
- Wall Street back in the green, Tech stocks were stealing the show
- UK PM May: Tonight’s vote shows nothing about what Parliament supports
- GBP/USD spikes lower to 1.2668 on leak of vote, Brexit vote confirms leak, the ‘No’s’ have it, sterling climbs to 1.28 handle
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