Hard Brexit becomes more likely as impasse drags on

Summary:

  • House of Commons rejected all four proposals to the May’s withdrawal agreement
  • Pound slipped on the news, it keeps trading in the vicinity of a crucial technical place
  • Reserve Bank of Australia left rates unchanged, Aussie trades lower in the aftermath

London doesn’t know what it wants

The UK Parliament does not know what it wants in terms of Brexit and after rejecting eight alternatives to the May’s withdrawal deal last week, it did so again on Monday by rejecting subsequent four alternative options. At the same time, the Parliament is opposed to the agreement Theresa May has hammered out with the European Union. As a result, a hard Brexit scenario seems to be more likely unless London asks for another deadline extension and Brussels agrees on it. What the alternatives the UK Parliament rejected? Motion C concerned committing the government to negotiate a permanent and comprehensive UK-wide customs union with the EU being a part of any Brexit agreement - the House voted 276-273 against this proposal. Motion D concerned so-called Common Market 2.0, so it would mean the UK joining the European Free Trade Association and European Economic Area - the House voted 282-261 against it. Motion E referred to calling a confirmatory referendum aimed at asking people to approve any Brexit deal passed through the Parliament - it was rejected by 12 votes. Motion G concerned to revocation of Article 50 meaning that Brexit would be canceled if the EU does not agree on another extension - the House voted 292-191 against this option. So having the impasse still unresolved it seems that a hard Brexit scenario has become more likely than ever before. Looking forward the cabinet will hold a five-hour meeting today. Then another round of indicative votes could be held on Wednesday before Theresa May could bring her deal back before the Parliament for a fourth vote on Thursday next week (April 10). The deadline for leaving the UK is set on April 12 and it would mean the UK could leave the block without any deal on that date unless another deadline extension is granted by the EU. The pound lost some ground on Monday’s evening but it has recovered some of its losses since then.

Technically the GBPUSD seems to be in a good position to bounce from the current level. The critical line for bulls is set around 1.2990, in turn buyers could eye 1.33 as their possible target. Source: xStation5

RBA stays on hold

Although Brexit was in the spotlight over Asian hours trading, we also got a RBA’s decision on interest rates. The central bank left rates unchanged as expected and wrote that would continue to monitor developments and set monetary policy to support sustainable growth in the economy and achieve the inflation target over time. This sentence was a subtle change in language compared to the March’s statement suggesting the RBA has adopted a neutral stance. While the April’s statement offered only minor tweaks in terms of wording, the Australian dollar has lost some ground since the decision. Given the latest economic developments in the Australian economy one may suppose that the RBA keeps an eye particularly on the labour market. Hence, if things go wrong there, it could undertake appropriate steps to prevent the deeper deterioration. However, it is not the case as for now, therefore we do not think the bank will have to cut rates this year (this notion is also contingent on an economic improvement in the second half of the year - China’s PMIs may have offered the green shoots of recovery. The market-based likelihood points to 80% odds for a rate cut by the year-end.

The AUDUSD is falling 0.4% at the time of writing and it is closing the important support placed in the neighborhood of 0.7070. Source: xStation5

In the other news:

  • US 10Y yield trades at 2.474%, down 3bps from yesterday's close

  • Bitcoin has jumped more than 15% in early European trading, the move could be associated with successful upgrade news related to Ethereum, according to Bloomberg

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