Summary:
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Pound gains on Common Market 2.0 hopes
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EURUSD not far from multi-year lows around 1.12
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Strong US ISM and soft Eurozone data weighing
There’s been a steady big underpinning the pound today and it appears that the market is positioning itself for a positive outcome from this evening’s indicative votes. Reports that Labour will be whipping in favour of the so-called “Common Market 2.0” motion could lead to a high level of support for the motion proposed by Nick Boles. Should this occur then it may pressure the government to change tack in its Brexit approach and should the move come it would represent a significant shift away from May’s deal.
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This is a handy overview of the different options proposed on Brexit and where they stand on the key issues: Source: Twitter @POLITICOEurope
It had looked like the most probable outcome from the indicative votes would be support for a customs union, which in effect is very similar to May’s deal with the Irish backstop in place. Therefore this wouldn’t cause too big a deviation, but Common Market 2.0 (also known as Norway+) is a much softer alternative and would keep the UK-EU relationship significantly closer. Voting results are expected to come around 10:30pm GMT.
GBPUSD is back near the 1.3145 level after a solid day of gains so far which have come on the back of hopes that a softer Brexit may gain support in parliament this evening. Source: xStation
The divergence between the US and the Eurozone in recent years has been apparent in monetary policy terms with the former embarking on a sustained hiking cycle while the latter remains stuck in negative rates and this has caused the EURUSD to remain under pressure.
EURUSD is getting little support on the data front with the pair still trading close to its lowest level in a couple of years. Source: xStation
More recently, there’s a notable divergence in terms of data too, with the Eurozone slowing markedly while the US continues to outperform. A microcosm of this can be seen today with the latest manufacturing figures from the old continent confirming drops in German and French activity with the two largest economies from the bloc seeing their readings in contraction territory below the 50 mark. In contrast, the US continues to outperform and while the final PMI from across the Atlantic did drop to its lowest level in almost two years, at 52.4 it is still firmly above the 50 mark. Furthermore, the more widely viewed ISM figure topped estimates in rising to 55.3 for March, marking a nice bounce from 54.2 prior.
The latest read from the ISM manufacturing release showed an improvement and bounced back higher after the USD PMI fell once more. While these are clearly pulling back they are still comfortably outperforming their peers in Europe. Source; XTB Macrobond
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