GBP/USD Fails To Rise On Good Data And This Is Not Promising

GBP/USD is trading around 1.3150. It had already reached out to 1.3200 earlier in the day, as the UK Services PMI beat with 51.3 points, escaping the abyss under 50 points which represents contraction. Contrary to the construction sector, the UK’s largest sector is still enjoying expansion, albeit at a slow pace amid concerns about Brexit.

The state of Brexit

Brexit Secretary Steven Barclay and Attorney General Geoffrey Cox are in Brussels for talks with Chief EU Negotiator Michel Barnier. They are trying to extract concessions on the Irish Backstop. The EU is ready to accept changes to the Political Declaration (PD) about the future relationship but no changes to the legally binding Withdrawal Agreement (WA).

Hard-Brexiteers led by the European Research Group (ERG) has hired a “dream team” of legal experts to scrutinize any changes that are made. They are unlikely to like what they see.

PM Theresa May is set to bring the updated deal to a vote in Parliament on March 12th. Failure will lead to voting on preventing a no-deal Brexit on the following day, followed by a vote on delaying Brexit on the next one. The most likely scenario is a delay.

However, No. 10 is working hard to convince opposition Labour MPs from Leave constituencies to support her deal and offers financial help for those areas. It was criticized as a bribe and may backfire, but nonetheless puts pressure on both these MPs and hard-Brexiteers in her own party.

US events

The US and China continue their trade talks, and hopes are high for a deal by the end of the month. However, this is mostly priced in, and markets are concerned that the agreement will not go far enough to remedy the economic damage that the trade war has inflicted, especially on China. The market mood is not so optimistic, and this favors the greenback.

The US ISM Non-Manufacturing PMI will provide insights on the state of the economy looking forward. The disappointment in the Manufacturing PMI lowers the expectations for the services sector figure.

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