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TALKING POINTS – BRITISH POUND, THERESA MAY, BREXIT, YEN, CHINA, TRADE WAR

  • Brexit back in focus as UK PM May unveils “alternative” divorce deal
  • Pound may rise if this too crumbles on hopes for a second referendum
  • Japanese Yen up as hopes for US-China trade war breakthrough fizzle

The Brexit saga is back in focus at the start of the European trading week. UK Prime Minister Theresa May is due to unveil an alternative to the plan for withdrawal from the European Union, which suffered a crushing defeat in Parliament last week.

That plan was hammered out through painstaking negotiations over two years, whereas whatever update is presented today will have had the benefit of just a few days’ fine-tuning. That means it ought to be almost identical to what was on offer already, but for a few key tweaks.

Ms May reportedly hit a wall in cross-party talks with opposition Labour over the weekend, switching gears to changing the so-called “Irish backstop” provision. This was meant to assure that Brexit will not re-establish a hard border between Northern Ireland and the Republic of Ireland.

The deal as initially conceived included a workaround wherein the UK remains in the EU customs union until a solution on the Irish border is set out. Tory Brexiteers balked at the open-ended scheme while the DUP, a Northern Irish party, rejected what it saw as the singling out of the area from the rest of the UK.

Ms May’s government relies on DUP support to push through legislation after losing parliamentary majority in a snap election in 2017. If she is can’t rally it and her own party behind whatever new plan, it too will fail. That a credible offer different enough from the rejected one can achieve this seems fanciful.

For its part, the British Pound will probably welcome another failure. Indeed, as noted last week, the currency seems to rally as the government suffers consecutive defeats because each one is hoped to bring about a second referendum. Composite polling hints such a plebiscite will cancel Brexit altogether.

YEN UP AS US-CHINA TRADE WAR BREAKTHROUGH PROSPECTS FIZZLE

Risk-off cues appeared in the G10 FX space in Asia Pacific trade despite a cautiously chipper mood on regional bourses. The anti-risk Japanese Yen traded broadly higher while the sentiment-geared New Zealand Dollar fell. The Australian Dollar managed to hold flat courtesy of Chinese economic data.

This may reflect retracement of Friday’s burst of optimism. Markets celebrated an overture from China meant to de-escalate the trade war with the US. Reports over the weekend suggested the absence of progress on intellectual property assurances critical to US negotiators has stymied talks however.

See our market forecasts to learn what will drive currencies, commodities and stocks in Q1!

ASIA PACIFIC TRADING SESSION

Asia Pacific Trade Economic Calendar

EUROPEAN TRADING SESSION

European Trade Economic Calendar

** All times listed in GMT. See the full economic calendar here.

FX TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter