Cable dragged down with EUR/USD - Brexit optimism fading?
Brexit optimism is fading a little, with GBP looking a little heavier this morning. Last week saw a Cable move above 1.2500, but the move ran out of steam ahead of 1.2600 as the market started to rein in expectations of a deal coming through between the UK and EU. As per reports at the end of last week, the EU maintained that they are yet to receive a credible alternative to the Irish backstop, but this morning the UK PM said it was welcome to see the EU showing some flexibility in its attachment to the current measures.
Clearly, the decreased chances of a no-deal have played a key part in reassessing premium in GBP, but any possible return to the hard-line stance could see this evaporate very quickly. Naturally, much depends on whether the PM yields to the request of parliament to ask for an extension, and this week we should also see the Supreme Court ruling on the prorogation of parliament. That said, the PM has insisted that he will seek another recess if the vote goes against him.
In the meantime, the opposition Labour party is also facing its own issues, with Jeremy Corbyn's questionable leadership under scrutiny once again after his top aide announced he is to resign. Any weakening of the opposition - to Brexit - will naturally shift the odds of a no-deal against GBP again, so it is worth keeping an eye on developments here also.
EUR/GBP tested lower this morning off the back of the weak Eurozone PMIs, with Germany's index plunging lower still. The cross rate only managed to push down into the lower 0.8800's, so as yet, the impetus to retest the lows just under 0.8790 is not there, and Brexit uncertainty could maintain demand here as a further sign that GBP gains may have peaked for now.