USD Gets a Boost from Brexit, Trans-Atlantic and European Risks

Jan. 15, 2019 (Western Union Business Solutions)  – Rising risks in Europe offered a broad boost to the U.S. currency. The euro led losses against the greenback with the yen and sterling also in the red. Somewhat stable global markets and oil prices supported Canada’s dollar. All eyes are on the U.K. today as Britain’s parliament is expected to vote on the divorce agreement that the prime minister forged with the EU. The unpopular plan all but assures that U.K. politicians will vote against the deal. Key for sterling and broader market morale will be the margin of victory, which is considered unlikely, or defeat. Voting on the deal is expected to start around 2 p.m. ET with a decision likely an hour or so later. The euro plunged after Germany reported the weakest growth in five years in 2018. While stronger Tuesday, the greenback’s fundamental appeal was perceived as limited with the Fed signaling a high bar to further rate increases.




The loonie firmed Tuesday as oil prices rose above $51. How the loonie fares today and over coming days could hinge on what transpires in Britain’s parliament since the big vote over there today could set the stage for broader market sentiment. An outcome that heightens political risk and uncertainty in Europe would tend to be bad for stocks and commodities, a situation that could leave the loonie at risk of losses against safer peers like its U.S. counterpart. Loonie sentiment has also wavered in the run-up to Canadian inflation on Friday. Softer price growth would inject uncertainty and doubt into the need for the Bank of Canada to raise borrowing rates this year.




Sterling slid a cent below two-month peaks against the dollar as players favored safer bets ahead of today’s expected vote in the U.K. parliament over the terms of Britain’s split with the EU. The market is positioned for the bill to be defeat but what could matter most is the margin. A small defeat might allow room for Theresa May to seek tweaks from the EU to make it palatable enough to cross the finish line. However, a large margin of defeat could spell heightened U.K. uncertainty. The pound is seen held hostage to the Brexit drama and tends to outperform when odds of a potentially cataclysmic no-deal, hard Brexit lessen.




The euro sank to its lowest in more than a week after Germany acknowledged the weakest growth in years in 2018. While Europe’s biggest economy grew for a ninth straight year, it did so at the weakest rate (1.5%) in 5 years which followed a 2.2% pace in 2017. The soggy data threw a wet blanket over chances of the ECB raising borrowing rates later this year. The big headwinds on growth were the slowing world economy and the trans-Atlantic trade dispute with Washington.




America’s dollar garnered a haven boost with risks on the rise in Europe. Today’s main market driver is liable to arrive around 2 p.m. ET when U.K. lawmakers are expected to start voting on the prime minister’s Brexit plan. While stronger, meaningful gains could elude the buck with the Fed signaling a wait and see stance with respect to future interest rate increases. Downbeat data on the U.S. economy further dampened prospects of a rate hike as Empire State index of New York area business conditions disappointed and grew at the slowest pace since May 2017 in January.


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