The Pound remains in the high area of the day, after it rebounded from recent weakness, putting in some more distance from Friday’s 3-week low at 1.2977. GBPJPY is the biggest mover and shaker today out of the Dollar pairings and associated cross rates. The pair, although some 25 pips off its highs, is up by 0.8% on the day so far, in 3-day high territory.
The March UK manufacturing PMI smashed expectations at 55.1, which is a 13-month high and marks a strong rebound from February’s 52.1 reading (revised up from 52.0). This was well up from the median forecast for 51.0 and was driven manufacturers stepping-up efforts to build safety stocks ahead of Brexit. This pushed inventories for both purchases and finished products to survey-record levels, which will be a down-the-road drag on activity.
Additionally, Sterling had been bid ahead of the data release, with markets pricing in the likelihood for a softer Brexit following the third defeat of UK Prime Minister May’s deal on Friday. Parliament will be voting on a series of non-binding proposals today at 19:00 GMT in a further attempt to establish a cross-party consensus.
There is also potential for a fourth vote on May’s deal, either in a runoff vote against whatever plan Parliament may come up with or with a modification to remain in the customs union, which would circumvent the Irish border issue and might be sufficient to attract a consensus in the House of Commons (at the expense of splitting the Tory party, which is something that May has been unwilling to do). If these efforts fail, either a new referendum or a general election would be on the cards.
From EU side, the EU has called an emergency Brexit summit, and the UK now has until April 12 to come up with a viable alternative way forward. As things stand, the UK will leave the EU on April 12 without a deal, though we expect Parliament to come up with something today.
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Andria Pichidi
Market Analyst
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