07/12/2018 - Markets Await Parliament Vote

GBP

Thursday was a fairly quiet day for Sterling as all eyes are firmly focused on the outcome of next Tuesday’s Commons vote. Sterling’s near-term fate hangs on whether Theresa May can upset the odds and get her Brexit withdrawal plan through Parliament.

Tuesday’s vote is the sternest test that May has faced during her time as Prime Minister, and the market consensus points to the deal being voted down. This deep opposition has raised the risk of a no-deal Brexit which would be a shock to Britain’s economy. She suffered embarrassing defeats on Tuesday at the start of the five days of debate over her deal, and a knee-jerk sell-off is expected if the deal is rejected. The outcome will also lead to a likely repricing of the UK rates curve, which will see further movement in the pound.

USD

The dollar weakened on Thursday as U.S. Treasury yields continued to tumble and traders scaled back expectations on the number of rate hikes the Federal Reserve would implement amid weakening economic data and heightened market volatility.

Fed policymakers are still widely expected to raise interest rates again at their December meeting but market attention is now focused on how many rate hikes will follow in 2019. Interest rate futures implied traders see no more than one rate increase in 2019, compared with expectations a month earlier for possibly two rate hikes.

Key Announcements

10.00 – EUR: Gross Domestic Product (YoY) (Q3)
10.00 – EUR: Gross Domestic Product (QoQ) (Q3)
13.30 – USD: Average Hourly Earnings (Nov)
13.30 – USD: Nonfarm payrolls (Nov)