It’s such a mess that even the apolitical Queen Elisabeth has weighed in, asking her kingdom to “seek out common ground and grasp the big picture.” A second Withdrawal Agreement (i.e. Brexit), not fundamentally different to the first, will be proposed on Tuesday. Prime Minister Theresa May has been using all her cards to get concessions from the European Union, while impatience among EU leaders builds. After two and a half years of talks, Brexit seems stuck at the same spot. So how will a proposed extension of the divorce deadline to year-end help anything?
It seems the EU might accept a “conditional extension” that would require the UK to provide realistic reasons for buying extra time. Such a request would need approval of the European Council, which is not planning to hold a special summit before March: this should push the British pound under heavy pressure as the existing Brexit deadline of 29 March nears. Meanwhile, the Bank of England is not expected to change its policy rate next week. It is expected to adopt a “wait and see approach” while communicating its readiness to intervene under any Brexit scenarios. GBP/USD is currently trading at 1.3156 (+3.27% year-to-date), heading along 1.3060 short-term.
Trading lull on slow news
Sentiment is weak today, as investors wait on sales forecasts for 2019. Attention will be on European Central Bank President Mario Draghi’s speech before the European Parliament. Following last week’s ECB meeting, Draghi will likely not provide new information. Earning reports are due from Caterpillar, Whirlpool, Celanese and AMG.
On Friday, the US dollar tumbled across all G10 currencies amid a broad risk rally. Equities ended last week in the green, thanks to a solid bounce back on Friday. The S&P 500 edged up 1% over the last 5 days, while the dollar index fell 0.65% to 95.80. On Monday morning, the mood has reversed as risk sentiment deteriorated. Equity futures headed South with the S&P 500 and the Eurostoxx 50 sliding 0.50% and 0.60% respectively; while the single currency edged down 0.05% against the buck. Safe-haven currencies were better bid on Monday morning: the Swiss franc rose 0.20% to 0.9920 and USD/JPY fell to 109.35, down 0.18% on the session.
