Global Themes

PM May survives crucial vote
- Sterling steady as PM May wins vote
- GBP/USD remains near 20-month lows
- Fireworks at final ECB meeting of 2018?

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After a tumultuous day in UK politics, Prime Minister Theresa May has survived a vote of confidence in her leadership and cannot be challenged as Conservative leader for at least another year. Sterling holds on for now but remains vulnerable with Brexit still in deadlock.

Ms May received 200 votes of confidence against 117 votes of no confidence – not quite the firm endorsement of her leadership some were expecting. The pound initially jumped higher but slumped back towards the $1.26 level against the US Dollar and under €1.11 against the Euro.

Overall it is a triumph for the Prime Minister. However, with over a third of her lawmakers no longer confident in her ability to implement Britain’s exit from the EU, the PM’s task of delivering her unpopular Brexit deal has arguably become even more challenging. The current draft Brexit deal was pulled by Ms May on Monday as it seemed impossible to achieve enough support to pass it through Parliament. This remains a huge hurdle for the PM to overcome and the ongoing uncertainty will continue to ignite currency volatility.

GBP/USD remains near 20 month lows
The political fog has dispersed somewhat for now, but the Brexit fog remains thick and the daunting task for Ms May continues. Although Sterling rebounded from 20-month lows sub-$1.25 against the US Dollar, it is still down over 5% since early November and remains vulnerable to further downside risk. Having stretched towards €1.12 earlier today, GBP/EUR has fallen back beneath €1.11 and is down nearly 5% since November.


Fireworks at final ECB meeting of 2018?
The European Central Bank (ECB) holds its final policy meeting of the year today at 12:45 followed by a press conference with ECB President Mario Draghi at 1:30pm. The central bank’s main interest rate is expected to remain unchanged at zero, with investors closely monitoring any further communication with regards to quantitative easing (QE).The ECB reduced QE in October with the intention of withdrawing the stimulus programme at the end of this year. However, bleak economic data from the Eurozone in recent months, amid global trade tensions and political turbulence, might sway the ECB’s decision.

The tone of Mr Draghi’s assessment of the Eurozone economy could play a pivotal role in Euro trading sentiment today. If the ECB President is surprisingly cautious and less hawkish, the Euro could unwind its recent gains. EUR/USD is attempting another run towards $1.14 again, continuing its seesaw motion between here and $1.13.

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