GBP/USD is lower in the Tuesday session, after sharp losses on Monday. In North American trade, the pair is trading at 1.2529, down 0.30% on the day. On the release front, British employment numbers were mixed. Wage growth climbed to 3.3%, above the estimate of 3.0%. This marked the strongest monthly gain since July 2010. However, unemployment claims rose to 21.9 thousand, much higher than the estimate of 13.2 thousand. In the U.S., PPI came in at 0.1%, above the estimate of 0.0%. Core PPI dropped to 0.3%, but beat the estimate of 0.1%. On Wednesday, the U.S releases CPI reports.
Chaos and uncertainty are some descriptions of the mood in London on Tuesday. In a dramatic turn of events, the May government has deferred the parliament vote over Brexit until an unknown date. The government pulled the plug after it became clear that it would face a massive defeat, which could have crippled the government, possibly costing Prime Minister her job.
Prime Minister May is meeting with European leaders, in a bid to save the listing Brexit agreement. May wants guarantees from the EU that if the backstop arrangement over the Irish border is implemented, the UK will be able to unilaterally withdraw from the arrangement. If May can get the Europeans to agree, the deal will have a better chance of passing through parliament.
The European Union, for its part, has flatly ruled out renegotiating the withdrawal deal. However, both the EU and the British government want to avoid a no-deal scenario, so perhaps the EU will bend in order to help May pass a deal in parliament. The confusion surrounding Brexit sent the British pound sharply lower on Monday.
Only a few months ago, there was talk that the Federal Reserve could hike rates every quarter in 2019. However, signs of a slowdown in the U.S. economy have drastically changed matters, as the Fed is expected to scale back its “gradual rate hike” policy to just one hike next year. Three rate hikes so far this year have slowed economic growth, as seen by lower GDP readings and a dismal nonfarm payrolls report for November. Still, the Fed is widely expected to raise rates at the policy meeting on December 19, with the CME setting the odds of a hike at 80 percent.
