Forex news from the European morning session - 12 March 2019
Headlines:
- UK's Barclay: There is no set end date to the Irish backstop
- Cox's advice: Legal risk remains unchanged that UK would have no lawful means of exiting arrangement
- US February NFIB small business optimism index 101.7 vs 102.5 expected
- Juncker reiterates that UK has second chance on Brexit deal; there won't be a third
- UK January visible trade balance -£13.1 billion vs -£12.2 billion expected
- UK January GDP +0.5% vs +0.2% m/m expected
- ERG lawmaker says group will support May's deal if DUP also supports it
- China reiterates call for US to drop case against Huawei executive
- BOJ's Amamiya: Exit strategy talk should start when inflation target is in sight
- Deutsche-Commerzbank merger approval said to rest on implementation
Markets:
- NZD leads, GBP lags on the day
- European equities lower; E-minis down 0.1%
- US 10-year yields up 0.7 bps to 2.647%
- Gold up 0.2% to $1,296.34
- WTI up 0.7% to $57.18
- Bitcoin up 0.5% to $3,867
The pound was the center of attention in the European morning as the world watches and waits on May's Brexit deal vote later today. Of note, UK attorney general released his legal advice on the new deal and mentioned that the legal risk for the UK remains unchanged. In particular, Cox mentioned that the UK would have no lawful means of exiting the backstop/customs union despite the government earlier touting that they had "legally binding" changes to do so.
Cable was already brought down from 1.3220 to 1.3160 on pessimism surrounding Cox's legal advice and once it was made official, the pound fell further with cable hitting a low of 1.3005 before now moving back up to 1.3030-40 levels.
Cox's legal advice not only had an impact to the pound but also set off a bit of a risk-off mood in markets as odds of a no-deal Brexit has increased slightly on the back of that. Overnight sterling implied volatility rose to its highest level since June 2016 and European equities turned from positive to negative; UK FTSE flipped the other way thanks to a weaker pound.
USD/JPY duly fell from 111.30-40 to a low of 111.14 before settling around 111.20 levels currently. The euro also pared gains against the dollar, falling from 1.1260-70 to 1.1250 now with the swissie also gaining some ground.
The aussie and kiwi remains relatively unchanged though, with both currencies holding their own still despite all the headlines.
Looking ahead, expect more volatility to follow in the pound as we move towards May's Brexit deal vote in the evening (and also votes on a no-deal and Brexit delay tomorrow and on Thursday respectively) and coming soon we'll have US CPI data as well.
