Last night Members of Parliament voted on 4 different alternatives to Theresa May’s Brexit plan and as a majority could be reached GBP/USD exchange rates dropped by 1% due to the further uncertainty. The alternatives were: Common Market 2.0, Customs Union access, Power to stop no deal and a second referendum.
The Prime Minister is set to hold a 5 hour meeting today with her cabinet to try and find a solution to break the deadlock within her own party. If progression is made the PM will try to push through a 4th meaningful vote this week. The problem the PM has is that her Brexit deal appears to be dead and buried as the DUP won’t support the backstop. If the PM changes to plan B and went down the route of Custom Union access then she is set to face resignations from an already frail government.
In the upcoming weeks anything could happen in the UK. The most likely outcome in my opinion is a long extension with a clause from the EU. This certainly is not what MPs want, however they have made it clear they don’t support a crash out Brexit or the Prime Minster’s deal, so an extension is the only other option. The next 10 days could be testing for the UK Government therefore I am expecting the pound to come under further pressure.
Good signs for the US economy
Many media stations have highlighted that the US could be heading for a recession because of the ongoing trade war and the longest ever government shutdown. However the dollar received a well needed boost yesterday when strong manufacturing data was released at 55.3 from 54.2.
As the Federal Reserve has changed their interest rate forecast from 2 hikes this year to 0, every economic data release appears to be coming under major scrutiny and an important data release to look out for is Friday’s Non-Farm Payroll numbers. Last month Non-Farm Payroll numbers were extremely disappointing and were released at 20k. Its key to note, this data release was when the US were in government shutdown and the month before the US jobs report was fantastic. This months report is set to be released at 175k and could give a good indication for the direction of the dollar moving forward.
My forecast is that the jobs report will exceed expectation and the dollar will have a good finish to the week against sterling.
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