Sterling is reasonably well poised ahead of a critical vote in the House of Commons on the draft Brexit deal which is due to start at 19.00 London time. The GBP/USD cross temporarily breached the 1.29 level in Asian trading but is back to the level – about 1.2850 – which prevailed 24 hours ago.
There are different schools of thought on how Sterling will react in the event of the House of Commons voting against the deal – the core scenario for most political analysts. One factor which may influence Sterling’s short-term path is the size of a majority against the Brexit deal but ultimately financial markets may well have to wait until next Monday for greater clarity, the deadline for Prime Minister Theresa May to announce the government’s next step in the event of a “no” vote later today. Sterling’s direction may be hard to predict short-term with heightened volatility likely to prevail.
EUR/USD, which had been reasonably stable above 1.145, edged lower following the release of preliminary data showing that German GDP growth had slowed to a six-year low of 1.5% in 2018. Data for Q4 have yet to be released but, assuming no revisions to previous quarterly numbers, GDP growth was very modest but positive after a 0.2% qoq contraction in Q3. Germany has seemingly avoided a technical recession (two consecutive quarters of negative growth) but the Eurozone’s largest economy is clearly struggling and this is having a knock-on effect on other European economies and to some extent the Euro.
