Morning Commentary: The More Things Change, The More They Stay The Same

Foreign Exchange - Morning Commentary
The More Things Change, The More They Stay The Same
Share this story:
Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
Volatility in the British pound was sharply elevated over the past 24 hours as it spiked up to a level that is ~2.5 times higher than the second most volatile G10 currency.   This sharp move in volatility was driven by news that PM May was able to win concessions on the terms of the U.K.'s divorce from the EU.  This new "joint legally binding instrument" addressed concerns over how to avoid a hard border in Ireland (EU) and Northern Ireland (UK) as well as concerns that the U.K. could be stuck in a customs union should the two sides be unable to strike a comprehensive deal. 
The GBP spiked higher by ~2.1% off the back of this news as hopes were raised that a Withdrawal Agreement could pass Parliament.  However, this optimism quickly faded and increased GBP selling quickly brought the GBP back down to where it started roughly 24 hours before. 
The catalyst for GBP selling came from a familiar source—concerns that PM May's deal wouldn't be acceptable to Parliament.  The GBP started losing steam as reports emerged from ERG and DUP officials indicating that those two parties would struggle to support the new deal as it falls short of requirements.  The selling then picked up steam as U.K. Attorney General Cox delivered a pessimistic assessment of the new deal.  The Attorney General acknowledged that while the revised terms reduced the risk that the U.K. could involuntarily and indefinitely remain in a customs union, there still remains risk that the U.K. will not have lawful means to unilaterally exit the customs union backstop.  In truth, this interpretation shouldn't have surprised the markets as the EU has been clear that the legal status of the backstop remains unchanged.  Nevertheless, the legal interpretation caught the market's attention and, for all intents and purposes, dealt a severe blow to PM May's chances of passing her Withdrawal Agreement. 
PM May is scheduled to hold a second meaningful vote today. With another defeat expected, the margin of defeat will be in focus.  Should the Withdrawal Agreement fail to pass by another wide margin (more than 150 votes), expect uncertainty to remain elevated and scope for further GBP weakness as long GBP has been the consensus trade over the past weeks. 
  • U.S. CPI came in a bit softer than expected with month over month core CPI coming in at 0.1%, missing estimates of a 0.2% rise as autos and prescription drug prices fell.  Ultimately, this report reinforces the Fed's narrative that inflation remains tame, allowing the central bank to remain on the sidelines. 
  • President Trump submitted his budget yesterday.  Democrats, and some Republicans, have expressed concerns over its elements, setting the stage for further discord.  While the initial budget is usually an opening gambit, Washington D.C. partisanship remains high, as exhibited by the longest government shutdown in history, making compromise difficult. 
  • A survey of business conditions in Australia fell from 7 to 4 which suggests that Australian GDP should continue to underperform and increase uncertainty around the Reserve Bank of Australia's forecast for lower unemployment. 
If we can help you with any Foreign Exchange needs, please email or call (800) 447‑4133.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Facebook Twitter LinkedIn Google Plus YouTube
Investment and Insurance Products:
Are Not insured by the FDIC or any other federal government agency
Are Not deposits of or guaranteed by a Bank or any Bank Affiliate
May Lose Value
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. The Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
Unsubscribe from this list  |  Update email preferences
This message has been sent to Please do not reply to this email. To ensure the delivery of future emails, please add to your email address book or safe sender list.
Copyright ©2019 City National Bank – All Rights Reserved.
350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071
City National Bank is a subsidiary of Royal Bank of Canada.
Equal Housing Lender
NMLSR ID# 536994 | City National Bank Member FDIC


Popular posts from this blog

Acquisitions or Alliances: What's Your Growth Strategy?