European Council to rule on May’s Brexit delay request

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10 April 2019


Brexit will be thrust back into the spotlight today after a quiet few days without much news.

he European Council will be holding an emergency summit on Wednesday and are set to discuss and ultimately rule on whether to grant the UK a Brexit delay to 30th June, as requested by Theresa May last week. With Sterling continuing to hold firm above the 1.30 mark against the US Dollar, the market appears confident that this request will be granted.

That being said, EU leaders have reiterated that the withdrawal agreement is not up for renegotiation and may judge the relatively short extension as insufficient to break the current impasse. A one-year flexible delay has instead been suggested, which would allow the UK to leave the bloc in the interim should May force a deal through parliament.

While the Pound will likely see little reaction from a confirmation of a delay to the end of June, a more meaningful extension of twelve months or more would be very good news for Sterling. We would likely see a very sharp rally that could potentially send the UK currency towards the 1.35-1.36 levels over the next few weeks.

Draghi to strike dovish tone following ECB meeting

The Euro was relatively range bound on Tuesday as investors patiently awaited this afternoon’s European Central Bank meeting.

Expectations for a significant announcement from the bank are fairly low going into the meeting. We think that policy will be kept unchanged with President Mario Draghi continuing to strike a dovish tone during his communications. Recent macroeconomic data has been very mixed so while the bank could laud the stabilisation in services activity, the latest slump in manufacturing activity is undoubtedly a cause for concern. The ECB is also likely to mention the heightened uncertainty over Brexit and an unease over an elongation of US-China trade discussions.

Aside from any big surprises, the main risk to the EUR/USD would be for the ECB to again push back its expectations for the next rate hike to the end of Q1 2020 from the end of 2019 previously suggested. This is, however, nothing more than a tail risk in our view and we think that today’s meeting could be more on the low key side.

Federal Reserve to release March meeting minutes

A hectic day in the currency markets will be rounded off by some important macroeconomic data out of the US and the release of the Federal Reserve’s latest meeting minutes.

Not long after midday UK time, we’ll get the release of the March US inflation numbers, expected to show that inflationary pressure picked up in the world’s largest economy last month. The Fed will then be releasing its minutes at 6pm BST. Fed members are likely to adopt a cautious tone, reinforcing the dovish stance it took following the March meeting. Should the minutes indicate that an easing in policy may be required down the road, we could see a fairly sharp upward move in the EUR/USD rate this evening.