Sterling has clawed back the sharp loss it made in the run-up to yesterday evening’s parliamentary vote on the draft Brexit deal. Broadly in line with expectations a significant majority of MPs (149) again voted down Prime Minister May’s deal but this has not stopped GBP/USD and GBP/EUR pushing higher in today’s session to 1.332 and close to 1.17, respectively.
There are a number of possible explanations for Sterling’s recovery. For starters, markets are probably pricing in the likelihood that parliament will this evening vote in favour of a motion which rules out the UK leaving the EU without a deal on 29th March. Moreover, Chancellor Hammond in his Spring (budget) statement today announced that the government’s fiscal reserve had swelled to £26.6bn thanks in part to a lower than expected fiscal deficit of 1.1% of GDP for the fiscal year ending in March.
Finally, the move higher in GBP/USD is being amplified by the underlying weakness in the Dollar which has now depreciated for five consecutive sessions. Weaker than-expected US CPI-inflation data out yesterday – 1.5% yoy headline and 2.1% yoy core – gave further credibility that there is little reason at present for the Federal Reserve to hike rate further.
