Sterling’s sharp rally earlier this week has seemingly run out of steam for now, with the GBP/USD cross trading back below 1.33. Sterling may remain in limbo near-term, with markets likely to refocus their attention on parliament’s (second) meaningful vote on Prime Minister May’s draft Brexit deal – or more precisely the Withdrawal Agreement and Political Declaration. She has promised that the vote would be held no later than 12th March and she is likely to use the next ten days to continue negotiating with the EU in the hope of winning tangible and legally-binding concessions (particularly on the controversial “backstop”) and swinging parliamentary support in favour of her Brexit deal – a deal which the House of Commons voted against with a crushing majority of 230 seats on 15th January.
The Dollar trade weighted index has managed to inch higher for the second consecutive session, with markets seemingly ignoring a weaker-than-expected ISM manufacturing PMI number for February. The index of activity in the US manufacturing sector fell from 56.6 in January to 54.2, the lowest print since November 2016 and further evidence that GDP growth may have slowed further in Q1 2019 from 2.6% qoq annualised in Q4 2018. However, this economic slowdown has arguably already been factored in, at least in part, with markets pricing in 2bp of Fed rates cuts this year and this is seemingly putting a floor under Dollar downside for now.
