Macro Brief: Brexit soap opera continues

Macro 2 minutes to read

Christopher Dembik

Head of Macro Analysis

Summary:  The ongoing Brexit saga has offered a great deal in the way of political spectacle, but little overall direction.


Without much surprise, UK Prime Minister May suffered another humiliating defeat yesterday. Northern Ireland's DUP and the Brexit-supporting ERG group did not back the deal negotiated by the government considering that changes do not deliver (1) legally binding changes to the withdrawal agreement and (2) an exit mechanism from the backstop.

In addition, US inflation was out lower than expected (both headline CPI and core CPI) which was considered by forex investors as mildly dollar-negative since it broadly reduces pressure on the Federal Reserve to normalise monetary policy.

Today’s focus will be on Brexit again as the Parliament is expected to vote on whether to leave the European Union with no deal, which will likely be rejected as well. Then, MPs will vote on whether to seek an extension of Article 50, which will probably pass on Thursday. It does not mean that the Brexit soap opera will end anytime soon since PM May will need to go back to Brussels to ask the EU-27 for an extension, which is not a done deal.

In other words, the GBP should see a choppy ride in the coming days. Today, EU ambassadors should also discuss Brexit in Brussels. Elsewhere, one of the most important data releases will be US construction spending in January. Consensus expects an increase of 0.4% versus -0.6% prior. This good figure should mostly result from an increase in nonresidential construction while private residential construction is expected to continue declining.

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