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Pound gains despite historic Brexit deal defeat

Mon 21 January 2019

The week ahead:

  • Eurozone economic sentiment (Tuesday, 10:00am)
  • European Central Bank interest rate decision (Thursday, 12:45pm)
  • US durable goods orders (Friday, 1:30pm)

Highlights from last week:

  • UK government suffers defeat over proposed Brexit deal, survives no confidence
  • UK inflation retreats in December
  • Sterling breaches two-month highs against Euro

The week ahead: Brexit deal making to continue, European Central Bank in focus

With the US government shutdown showing no signs of ending and Brexit negotiations set to continue, the coming week could be volatile. Theresa May is due to present her new Brexit plan to the Commons on Monday, with a vote scheduled for January 29th.

Moving away from political developments, the European Central Bank (ECB) will vote on interest rates (Thursday, 12:45pm). No changes are expected, although policymakers may shed further light on potential changes in the summer of this year.

Other euro zone releases include the ZEW survey of economic sentiment (Tuesday, 10:00am) and both manufacturing and services PMIs (Thursday, 9:00am). It is a relatively busy week for the euro, and follows news of slowing German economic performance last week.

PMI figures will be released for the US (Thursday, 2:45pm) and will be followed by durable goods orders for December (Friday, 1:30pm). Closer to home, domestic releases will include UK unemployment figures (Tuesday, 9:30am) and UK wage growth figures (Tuesday, 9:30am).

Further afield, New Zealand inflation figures are released on Tuesday at 9:45pm and Australian unemployment comes in at Thursday, 00:30am.

View UK, US and euro zone announcements with our economic calendar

Other key data releases:

Australian composite PMI (Wednesday, 10:00pm)

Japanese manufacturing PMI (Thursday, 00:30am)

US new home sales (Friday, 3:00pm)

May suffers crushing defeat of Brexit deal but survives no confidence vote

The House of Commons voted against Theresa May’s Brexit deal on Tuesday evening. The defeat, in which 432 MP’s voted against compared to 202 for, was the worst since 1924.

The pound gained against both euro and US dollar after the announcement, as the Prime Minister said that she would engage all parties in the House of Commons before returning to Brussels for further negotiations. The defeat could also heighten the possibility of a second EU referendum.

Political developments continued on Wednesday as the government survived a vote of no confidence. This result was widely expected, and the pound saw little change throughout proceedings.

On Thursday morning, sterling broke one-month highs against the euro at which point a telephone conversion of £10,000 via our Currency Service would have purchased €11,171. Sterling extended gains throughout the latter half of the week

UK inflation drops in December, retail sales also decline

Inflation figures for December released on Wednesday showed that inflation fell to 2.1% in December. This is a contrast to November’s figures, where it stood at 2.3%. While inflation had been expected to fall, this occurred sooner than expected and marks the lowest level since January 2017.

December’s drop was largely spurred by falling fuel prices which followed a decline in oil prices. The Bank of England’s inflation target currently stands at 2.0%.

Despite the drop, sterling was little changed by the release as ongoing political developments continued to drive market flows.

UK retail sales figures for December showed a decline of 0.9% from November, supporting the idea that the British economy weakened slightly towards the tail end of 2018. However a large portion of the decline can be attributed to November’s Black Friday event which may have encouraged consumers to carry out Christmas shopping earlier than usual.

German GDP shows slowest growth in five years, euro zone inflation falls

Tuesday saw the release of gross domestic product figures for Germany, which saw disappointing growth in 2018. The largest country in the euro bloc saw growth of 1.5% in 2018 – a marked decline from 2.2% in the year before.

While this marks the ninth year of consecutive growth, the slowdown hints at potential problems in future. Reasons for the decline include a weaker global economy and struggling German exports.

Euro zone inflation also declined in December, largely as a result of energy prices, falling to 1.6% from 1.9% in November.

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