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Sterling Pares Gains Despite Signs of Progress to Avert No-Deal Brexit

4/4/2019, 2:55:19 PMMarket Analysis
Sterling Pares Gains Despite Signs of Progress to Avert No-Deal Brexit

Sterling retreated from session highs Wednesday, despite cross-party support for a bill seeking to delay Brexit and reports of "constructive" talks between Prime Minister Theresa May and leader of the opposition Jeremy Corbyn on a plan to break the Brexit impasse.

GBP/USD rose 0.19% to $1.3154, but remained well below session highs of $1.3196, even as U.K. lawmakers backed a bill that, if passed, would require the prime minister to seek an extension to Brexit beyond the current deadline of April 12. Sentiment on the pound was challenged early Wednesday by U.K. services data that undershot expectations.

The bill, proposed by Labour MP Yvette Cooper, scraped through by 312 votes to 311 to allow a debate. That's now going on in the House of Commons. If it passes the lower chamber, it will be put forward to the House of Lords on Thursday.

The narrow victory for the motion to delay Brexit arrived on the heels of another dramatic round voting as House of Commons Speaker John Bercow, following a 310 to 310 tie, cast the deciding vote against a motion that would have paved the way for another round of Brexit indicate votes on Monday.

Traders also digested positive remarks from the government and the opposition, with both camps describing a meeting between May and Corbyn as "constructive."

The two leaders met on Wednesday afternoon and reportedly agreed a "program of work" to hash out a plan to put to lawmakers for a vote.

The dollar struggled to cut its losses, despite sterling running out of the steam, as soft economic data pointed to a wobble in the underlying economy.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell by 0.33% to 96.60.

The ISM non-manufacturing index fell to a reading of 56.1 in March from 59.7 a month earlier, missing expectations of 58.1.

"Fewer new orders, including for exports, reflect a weaker global economy, firmer dollar and retaliatory tariffs," BMO said in a note.

The services sector is a critical component of the U.S. economy, accounting for roughly 66% of U.S. gross domestic product (GDP).

Ahead of the crucial nonfarm payroll report due Friday, private payrolls grew by 129,000 last month, a sharp decline from the 197,000 in February, according to a report released Wednesday by ADP (NASDAQ:ADP) and Moody's Analytics. That missed economists’ forecast of 184,000.

EUR/USD rose 0.37% as euro area retail sales and the services PMI topped expectations, helping bund yields turn positive and easing worries that the trading bloc is headed for a recession.

USD/JPY rose 0.13% as risk sentiment remained biased to the upside amid expectations for more signs of progress on U.S.-China trade talks.

USD/CAD fell 0.07% to 1.3328 as U.S. oil prices moved off session lows despite an unexpected build in crude inventories.