Financial market research and analysis

At the 11th hour Theresa May and European Commission President Jean Claude Juncker agreed meaningful adjustments to the Brexit deal. The pound soared overnight in glee, coming within a breath of $1.33 a two-week high versus the dollar. The pound peaked at €1.18, its highest level versus the euro since Spring 2017.

Theresa May is now hoping that the attempts at legal assurances to prevent the UK being trapped in the Irish backstop arrangement indefinitely are enough to get her deal through Parliament. The big test will come today, when ministers vote on the Brexit deal in the second meaningful vote. Are the changes, which fall short of what Parliament requested from Theresa May, sufficient for the PM to gain around 100 votes in the House of Commons?

A win for May and the pound?

In the cold light of day, the pound is showing signs of nerves, trimming gains, as doubts set in whether the legally binding instrument, based on promises from Jean -Claude Juncker and Donald Tusk will prevent another humiliating defeat for May. GBP/USD is at $1.3215 ahead of the start of the London session. Should the deal be approved in the House of Commons then the UK will be on track to leave the EU in 17 days. We could expect the pound to push quickly towards $1.34, as some sense of certainty returns. However, these gains are unlikely to be sustained as investors move their focus to what leaving the EU means for the UK economy.

Defeat?

Another defeat and Parliament will vote tomorrow on whether the UK should leave the EU with no deal. Whilst Theresa May has often said no deal is better than a bad deal, many ministers have suggested that they don’t want a no deal scenario. Under a no deal scenario BoE Governor Mark Carney has said that sterling could drop 25%. So, a defeat in today’s vote could see the pound dive 2% just on fear of what might happen on Wednesday. Whilst it is impossible to predict which way today’s vote will go, volatility in the pound is certain.

Data up first

Prior to the Brexit vote there are a slew of UK releases which could briefly grab traders’ attention away from the main event later in the day. UK GDP is expected to have grown 0.2%, after contracting -0.4%. Whilst UK manufacturing and industrial production remain at standstill.

FTSE

Whilst European futures are pointing to a higher start, the FTSE is lagging behind. The stronger pound will weigh on the UK index, keeping any gains in check. Bright Brexit prospects may be helping Sterling but multinationals firms earning abroad, are negatively impacted by a less favourable exchange rate.

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