Pound advances as UK and EU make last minute Brexit changes

Summary:

  • UK and EU made notable changes to the current Brexit agreement being set to vote this evening in the UK parliament
  • Pound surges more than two big figures on optimism that Brexit could be finally delivered in an orderly fashion
  • Equities rebound across the board reflecting improved risk sentiment

The final stretch

Before this week almost everybody expected a series of votes scheduled in the UK parliament to be a tremendous defeat for Prime Minister Theresa May. Since then, things have evolved to some extent and even as there are still notable risks that today’s voting will end with a rejection, the likelihood of an orderly Brexit scenario has increased. Such conclusions can be drawn from the last-minutes talks between the UK and the EU in Strasbourg which resulted in some changes to the current Brexit accord. According to reported we have been offered so far Theresa May has secured legal binding changes that strengthen and improve her withdrawal agreement. Let us note that these changes are expected to be added to the deal just hours before MPs will vote whether to accept or reject May’s agreement with the EU. Among changes there is a legal guarantee that the UK cannot be trapped indefinitely inside the backstop arrangement. President of the European Commission Jean-Claude Juncker wrote on his Twitter account “The choice is clear: it is this deal, or Brexit may not happen at all.”

Nevertheless, optimism among other parties seems to be limited and even some Conservative Party’s members doubt that the revamped agreement could be enough to get broader support in the UK parliament this evening. For instance, Steve Baker, a pro-Brexit member of the May’s Conservative Party, said the new agreement seems to fall short of the plan the parliament in London wanted to see. In turn, the DUP informed that it would study the details of the latest EU-UK agreement - note that the DUP’s support is critical. A harsh stance presented Jeremy Corbyn who said that PM May’s negotiations had failed and the parliament must reject her proposal on Tuesday. In response to these revelations the pound rallied as much as three big figures and it almost touched 1.33 against the US dollar. Since then, the British currency has given back some of its gains and it is trading at around 1.32 at the time of writing, still more than 200 pips compared to the yesterday’s low. Let us remind that if the May’s deal is rejected today, then MPs will vote whether to allow the UK to leave the block without any agreement. This vote is also likely to be rejected, and then a vote whether to ask the EU to extend the Brexit deadline could take place.

The GBPUSD soared on Monday on Brexit optimism. The pair almost touched a resistance place at 1.33. Looking broader, bulls may still count on a move toward 1.3640 based on technical analysis. Source: xStation5

Equities recover across the board

Along with the rallying pound we also saw noticeable rises across equity markets on Monday. The NASDAQ (US100) climbed 2% while the SP500 (US500) jumped 1.5%. In turn, the Dow Jones (US30) lagged behind its country’s peers and gained only 0.8% as Boeing shares (-5.3%) weighed on. In Europe investors experienced decent gains as well and good moods were also seen in Asia where the Hang Seng (CHNComp) has risen 1.4% while the NIKKEI closed 1.8% higher. Looking into US tech stocks one may notice that a solid increase on Monday was led by Nvidia shares which climbed almost 7% on the news that the company knocked out Intel in its bid to buy the Israeli chipmaker Mellanox for $6.8 billion. The deal is expected to help power Nvidia’s cloud computing. On the macro side we also got a better-than-expected US retail sales release which boosted economic sentiment alike. As a result, the US100 closed to 7200 points, the important technical resistance being worth looking at.

The US100 rose notably on Monday led by Nvidia shares. Source: xStation5

In the other news:

  • Australia’s NAB showed that both business confidence and business conditions deteriorated in February

  • Australia’s home loans fell 1.2% MoM in January after falling 1.5% in December

  • China’s Vice Premier Liu He and US Trade Representative Robert Lighthizer held specific negotiations over critical issues about the wording of a trade agreement

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