Financial market research and analysis

Asian markets didn’t follow Wall Street higher, instead they eased back from the 5-month highs reached on Monday. Investors are now waiting to see if all this positive trade talk commentary can turn into a signed trade agreement between the world’s to largest economies. With no new developments since the weekend, trader enthusiasm waned.

Pound Jumps On Brexit Developments

The pound hit a 4 week high of $1.3155 as it heads towards the European open. Brexit news signalling Theresa May floating a delay to Brexit and the shock announcement by Labour to fully support a second referendum have boosted the pound to levels not seen since the end of January. This could just be the start for the pound. Volatility in sterling is unlikely to end here given the busy day ahead.

Labour’s Jeremy Corbyn’s political U-turn by agreeing to back a second Brexit referendum provided initial gains for the pound. These gains were then extended by suggestions that Theresa May will look to formally rule out a no deal Brexit in favour of delaying Brexit to get a good deal. Whilst this is great news for the pound, May does so at the risk of infuriating the hard-line Brexiteers in her party.

The removal of a no deal Brexit could provide a solid floor around $1.30 for the pound. The prospect of crashing out of the EU without a deal is what has sent the pound below $1.30 or even down to its weakest levels since the referendum. The removal of that option, whilst being favourable for the pound, could weigh on the FTSE. As stronger pound is bad news for the multinationals on the UK index which earn abroad, given the less beneficial exchange rate.

BoE Before Treasury Select Committee

Looking ahead across the day key risk events could provide fresh impetus for the pound across the day. BoE Governor Mark Carney along with a handful of MPC members will take the hot seat in front of the Treasury select committee to discuss the February inflation report. The BoE member are expected to repeat a cautious upbeat tone on economic developments whilst signalling g that a no-deal Brexit presents a sizeable risk to the UK economy and future policy decisions.

Pound to $1.32?

This afternoon, Theresa May will update Parliament on her progress in talks with the EU. Here she could formally propose avoiding a no deal Brexit. Here we could see the pound look to test the late January high of $1.3160 before it extends gains to $1.32. A failure by Theresa May to signal a delay for Brexit could see the pound crash back below $1.31 before target $1.30.

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