GBP/USD softer as PM May gives a statement to House of Commons

Cable has ascended to the highs before UK PM May addressed MPs about Brexit but is drifting lower as May reiterates her opposition to a second Brexit referendum and announces a date for the meaningful vote as the 14th of January. She was making an emphasis on how the backstop will not need to be triggered and if the backstop were to be triggered, it would be temporary, proclaiming that there is no plot to keep the UK in the backstop. 

However, Labour's leader, Corbyn, spoke and expressed that the Priminste'rs deal is the very same deal and that the EU has said that there will be no further negotiations. Corbyn was quoting a cabinet minister who said that the 'shoddy' deal would not be backed by the cabinet and that we are edging ever closer to the 29th March deadline without a deal. Finishing by slamming the Tories and saying that their very existence is being discussed and is the first government in history to be held in contempt of parliament. 

Looking forward, sterling would likely get a boost if the probability of a second Brexit referendum grows on the hope that Britons would vote to reverse Brexit. The Sunday Times reported over the weekend that "two of Theresa May's most senior allies are preparing for a second EU referendum behind her back". 

"GBP net short positions increased to the highest level so far in December on the back of rising risk of a hard Brexit. After surviving a vote of no-confidence last week, Prime Minister May was unable to convince European leaders to offer the UK much stronger assurances regarding the contentious Irish border backstop so she could convince MPs to support her Brexit deal. Developments in UK politics will continue to fuel GBP volatility," analysts at Rabobank explained. 

Ladbrokes currently quotes 6/5 for another UK EU referendum before the end of 2019; Paddy Power makes it an even bet. However, odds for William Hill for May's withdrawal agreement to be approved by MPs before Britain's scheduled exit from the European Union on March 30 are at 5/2.

Eyes on the Fed

In the meantime, eyes will now turn to the Fed and the likely performance of the greenback into year end. Analysts at Standard Chartered Bank expect the FOMC to raise the FFTR by 25bps to 2.50%, IOER by 20bps to 2.40%:

• "We see a 50% chance that median SEP ‘dots’ will continue to indicate three hikes in 2019 
• Statement and press conference should convey more confidence in domestic than global outlook 
• FOMC lacks a blueprint for managing global risks alongside waning fiscal ‘sugar rush’"

GBP/USD levels

Analysts at Rabobank explained that GBP/USD’s recent move to 1.2479/77 was not confirmed by the daily RSI but the rebound has failed to make much impression on the 1.2662 August low and the market remains under pressure.

"While rallies remain capped by the 20 day ma at 1.2717 we will regard the market as vulnerable on the downside. Below 1.2477 targets the 78.6% retracement at 1.2109. Above the 20 day ma lies the 1.2840 current December high but while capped by the resistance line at 1.2953 it will remain offered."