06/12/2018 - Brexit Reversal Odds Increase

GBP

Sterling had a mixed day on Wednesday as early losses were stemmed by the rising odds of a Brexit reversal. This came after early data showed a shocked slide in Britain’s services sector and suggestions that the economy would barely grow in the last quarter of 2018.

The pound recovered from 17-month lows off the back of suggestions in some quarters that Britain may opt not to leave the European Union after all, although any gains were kept in check by the looming vote on Brexit in parliament. Britain’s parliament is debating the proposed Brexit deal but is expected to vote it down on December 11th. The margin of defeat is seen as the big indicator of Sterling’s next direction, with a crushing defeat possibly leading to May stepping down and a general election being triggered.

USD

The dollar steadied on Wednesday after worries about a possible U.S. recession following an inversion in part of the U.S Treasury yield curve failed. The difference between short-dated and long-dated U.S. Treasury yields narrowed on Tuesday as the inversion of the yield curve spread between more maturities, prompted by worries about a slowdown in U.S. economic growth.

The apparent thawing in trade tensions between Washington and Beijing had sapped demand for the safe haven dollar, but lingering uncertainty regarding China and the United States’ ability to resolve their trade war provided support to the greenback.

EUR

The Euro enjoyed modest gains on Wednesday after The European Commission published non-binding proposals to boost the role of the euro in international payments and its use as a reserve currency to challenge the dominance of the dollar.

However the Commission did admit this was not possible in the long term, as higher dollar liquidity, lower transaction costs and its use as a benchmark in commodities and derivatives markets meant that the sixty percent of global foreign exchange reserves are in USD. The euro may be the second global currency, but its market share is just 20 percent.

Key Announcements

23:45 – USD– FED Chair Powell Speech