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Forex Today: British Pound remains bid as market sees no-deal Brexit as less likely

Market Analysis /
17 Jan 2019

LDN/NY Wrap:

  • Theresa May wins confidence vote (325-306)
  • UK CPI in line with expectations / month-on-month figure for December came in at 0.2 %, while year-on-year number arrived at 2.1 %
  • Italian CPI (Dec) -0.1 % m/m, as expected and unchanged from November
  • Crude Oil Inventories -2.683M vs -1.323M expected

FX:

The British Pound extended gains slightly today after UK Prime Minister Theresa May survived a vote of no confidence by a narrow margin. May needs to focus now on finding a solution for the on-going Brexit drama, with a second referendum not being completely ruled out.

The uncertainty around the Brexit is as high as never before, so it might appear odd why the Pound is rising. However, the outcome of the votes helps to minimize the risk of a hard Brexit.

While traders should be prepared for a sudden surge in GBP volatility, many market participants prefer to stay on the side-lines until there is more clarity. Cable could therefore see a period of consolidation between 1.27 and 1.30.

GBPUSD
GBPUSD

Other major currencies continued to trade in a tight range – with the US Dollar in demand, and the Japanese Yen under pressure amid an improvement in risk appetite.

Stocks:

The S&P 500 and DAX both ended the trading day with a modest gain. Stock markets caught a bid following China´s tax cut announcement, but this alone will not be enough to keep the momentum up. Market participants are still waiting for an update regarding the trade talks between the US and China.

The Session Ahead:

  • FOMC Member Kashkari will speak at 0030 GMT. He is known as a dove, so there might be some USD-bearish comments
  • No major data releases scheduled for the upcoming APAC session; only notable one´s are Australian consumer sentiment and Home Loans

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