The worst performing currency today was the British pound, which fell sharply against all of the major currencies. This is a big week for sterling as Prime Minister Theresa May originally planned to hold a Brexit vote on Tuesday. However sterling crashed lower after it was blocked by Parliament. The deal needs to be “fundamentally different” according to the House of Commons Speaker John Bercow. With the UK scheduled to leave the European Union on March 29th, time is running out and May needs to officially request for an extension of Article 50 from the EU. As this would need to be approved by all 27 remaining states, their next opportunity to get an extension is Thursday’s EU Council meeting. But the problem is that May has to ask and we’re still waiting for her to do so. The EU has had the upper hand all along and without an approval of the Withdrawal Bill, she has very little basis to ask for the “short technical” extension that she prefers. Instead, she will most likely be forced into a longer delay that could even include a mandate to hold a second referendum. If May does not request for an extension by Thursday, sterling is in deeper trouble because this suggests that it will come down to the 11th hour with the EU forced to hold an emergency summit March 28th.
The Bank of England who meets on Thursday won’t be happy with these developments so GBP/USD could drop to 1.30 this week unless May makes enough changes or magically secures enough support to hold her third Withdrawal Bill vote by Thursday. But even before BoE we could see a further slide in GBP if tomorrow’s labor market report surprises to the downside. According to the PMIs, the service sector saw the biggest decline in employment since 2011 while the manufacturing sector reported the fastest rate of job losses in 6 years. On a technical basis, lower lows and lower highs are a sign that the bulls are losing control with GBP vulnerable to further weakness.
Trading was quiet for other the major currencies. The greenback, which started the NY session under pressure recovered part of its losses as the day progressed. Stocks also ended the day in positive territory after earlier losses. The Federal Reserve’s monetary policy meeting and Fed Chair’s Powell’s press conference are the main events for the dollar this week and with no resolution to US-China trade tensions and Brexit, patience will be their continued stance. Stronger than expected trade numbers helped to lift EUR/USD but the rally fizzled underneath the 50 and 100-day SMAs. The commodity currencies are also ending the day closer to their lows than highs despite stronger trade numbers from Japan and a record high in New Zealand stocks.
The RBA minutes will be released this evening and we expect continued cautiousness from the central bank. European investors will also be wary with downside risk to the German ZEW survey. There’s also a dairy auction on Tuesday but the impact on NZD should be limited.