Forex today saw the British Pound gap lower in Asia as last week’s Brexit optimism faded courtesy of little progress and UK infighting over the weekend.
Britain and the EU paused negotiations till Brussels Summit as talks between British Brexit Secretary Dominic Raab and EU negotiator Michael Barnier failed to resolve key issues, including the backstop for Ireland/Northern Ireland to avoid a hard border.
The EU is insisting that Britain gives assurances that if the UK-EU trade deal falters, then the British province of Northern Ireland will remain inside the EU’s economic rules. However, British PM Theresa May and her allies in Belfast are rejecting that.
Further, the head of the Norther Irish Party, which props May’s government, reportedly said on Friday that it is “ready” to trigger a no-deal Brexit and now regards it as the “likeliest outcome.”
As a result, GBP gapped lower in Asia and could remain under pressure into Wednesday’s EU summit.
The EUR remained heavy in Asia on the on-going Italy issue. The negative bets on Italian government debt are nearing a five-month high, Kate Allen from FT.com reported yesterday. The data indicates that investors are positioning for a negative outcome of the upcoming dialogue between Italy and the EU official over Rome’s budget plans.
The spread between the 10-year Italy and German yields is already at a five-year high of 308 basis points and could rise further, pushing the common currency lower across the board in Europe. Further, the rising political tensions in Berlin could also keep the EUR on the back foot. German chancellor Angela Merkel’s ally – CSU – has suffered massive losses in Bavaria’s state elections. More importantly, the anti-immigration AfD has entered the state parliament for the first time.
The anti-risk JPY found bids in Asia, but the USD/JPY failed yet again to find acceptance below 112.00. The repeated failure to keep losses below the psychological level is teasing a corrective rally, which will likely gather pace after the pair has cleared the channel resistance.
Key headlines in Asia
- Over the weekend: Brexit back under a microscope as tempers flare
- UK Brexit Ministry: Brexit progress made, but unresolved issues on backstop – Reuters
- China CommerceMin: China to slap anti-dumping duty on chemical from US, Japan
- PBOC’s Yi Gang: Yuan is stable, not an economic war device
- Saudi Arabia strikes back at US over political rhetoric, threatens oil stability
- Hedge funds warning global growth prospects could start to cool off – Financial Times
- White House Economic Advisor Larry Kudlow: Trade talks with China have been ‘unsatisfactory’
- Trump: ‘Comfortable’ as President despite political battles – Reuters
- Japan manufacturers’ mood rises, trade worries weigh on outlook: Reuters poll
- Moody’s: Persistently low interest rates in Germany will maintain pressure on banks
Economic data in Europe
- No first tier data releases scheduled
Events in Europe (GMT)
- 09:15 European Union banking regulators and supervisors speak in Brussels.
- 16:00 ECB’s Daniele Nouy speaks at the Solvay Schools Alumni Congress in Brussels.
- 18:00 ECB Vice President Luis de Guindos gives a speech in Madrid, Spain.
What’s brewing in majors?
- EUR/USD sees headwinds on the rise from Italian budget, German elections upset
- GBP/USD pinned to 1.3100 after a gap lower on fresh Brexit angst
- USD/JPY Technical Analysis: Stuck in a range
Price action in related markets
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