GBP/USD is showing significant swings on Tuesday, moving as much as 1 percent. In North American trade, the pair is trading at 1.3114, down 0.29% on the day. In economic news, sharp British indicators were unable to boost the pound, as they have been overshadowed by the upcoming Brexit vote in parliament.
British GDP gained 0.5% in January, above the estimate of 0.2%. Manufacturing production jumped 0.8%, beating the forecast of 0.2%. In the U.S., Core CPI edged down to 0.1%, shy of the estimate of 0.2%. CPI remained steady at 0.2%. On Wednesday, the U.K. government releases its annual budget, while the U.S. publishes PPI and durable goods orders data.
It is crunch time for the long and windy Brexit saga, with parliament set to vote on the government’s withdrawal agreement later on Tuesday. Will this vote be any different than the first attempt in January, which the government lost by some 290 votes? Prime Minister May said she had secured “legally binding” changes from the E.U., which would allow the U.K. to cancel the backstop arrangement over Ireland, but it’s questionable if this will be enough to sway Conservative MPs, many who fear that the backstop will prevent the U.K. from getting out of the European Union. If the vote on withdrawal is rejected by lawmakers, the next step is one on a no-deal Brexit, and the second on requesting the EU to extend Article 50 and delay Brexit past March 29. Traders should be prepared for strong movement from GBP/USD in the North American session.
U.S. inflation numbers remain well below the Federal Reserve’s inflation target of 2.0 percent. This has given the Fed plenty of breathing room regarding rate hikes, as policymakers continue to signal that the Fed could hold off until the second half of the year. In a television interview on Sunday, Jerome Powell left no doubt about where the Fed stands, saying that the Fed would remain patient and did not felt any hurry to change interest rate policy. The dovish stance of the Fed could weigh on the dollar, as a lack of rate hikes makes the greenback less attractive to investors.
