Monday evening saw the pound fall as parliament failed to find an alternative on Brexit for the second time. This means that Britain remains no closer to breaking the Brexit impasse and the future direction of Britain’s exit remains mired in confusion. This lack of certainty is weighing on the pound, and Brexit minister Steven Barclay announced that the default government position is that Britain will leave the EU on April 12 without a divorce deal unless a consensus can form. This is a nightmare scenario for many international businesses and market investors, and is keeping sterling from strengthening. The option that came closest to getting a majority was a proposal to keep Britain in a customs union with the EU while the proposal that received the most votes was the proposal to hold a confirmatory second referendum on any deal.
All of this came after a day where Sterling enjoyed modest gains as there was optimism that the evenings voting would force Britain into a softer Brexit than first imagined. This was very much focused on a hope that parliament would vote to remain part of the Customs Union, or form a 2.0 version of one. There were even suggestions that some investors had begun to price out the prospect of Britain leaving without a deal, and better than expected manufacturing survey data supported the pound. The survey showed that many factories had effectively stockpiled for Brexit, pushing manufacturing growth to a 13-month high. However the positivity was sapped by the lack of breakthrough in Parliament and gains were undone. May is due to meet with her Cabinet on Tuesday to discuss the government’s next moves.
The Euro enjoyed a stronger day as inflation in the Eurozone looked to be slowing, giving support to Draghi’s intention to delay a planned tightening of monetary policy. Both the Eurozone headline and core inflation number slowed in March, coming closer to the European Central Bank’s target of 2%. Mario Draghi had received some criticism for his proposal to delay future interest rate hikes in the Eurozone, but this looks to have been well judged.
The U.S. dollar weakened slightly yesterday after a drop in the U.S. retail sales figure. The U.S. Commerce Department announced that sales dropped 0.2 percent in February, following relatively strong data in January. The reason for the decline was that households in February has cut back on purchases of furniture, clothing, food and electronics and appliances as well as building materials and gardening equipment.