Despite the initial spike in the GBP due to UK Prime Minister Theresa May stating that she would include the option for a second Brexit referendum for MPs to vote, the gains were soon reversed, as it still appears unlikely that her Brexit plan will get passed. Within minutes of the ending of PM May's speech, the backlash began, with Pro-Brexit Conservative MPs, the Labour party and the Northern Ireland MPs all condemning her proposal and vowing to vote against it in the House of Commons next month. Should there be no eventual solution proposed to the EU, the extension given will be in vain, and the “hard Brexit” outcome will remain. Moreover, with PM May due to step down in early June, and growing expectations that the new UK Prime Minister’s direction will be different for PM May’s, the current Brexit process could become more complicated.
Tonight, eyes will be towards the FOMC minutes, with the USD stabilizing ahead of the release. During the last meeting, the Fed held interest rates steady and signalled that there was no strong case for hiking or cutting rates. It also generally stated that the recent slowing in inflation could be temporary, and that there was no reason to cut interest rates at present. Thus, more details will be revealed in the minutes, to see if all members feel the same way. Meanwhile, latest US inflation numbers faltered, and remained muted. This further hints that the soft inflation may not be temporary and could warrant a rate reduction in the future. Thus, should the minutes show that there are a fair number of members feeling that a rate cut is needed this year, the dollar might weaken further.
Newly re-elected Australian PM Morrison met with central bank chief Lowe to discuss an urgent fiscal stimulus following the nation’s slowing economy. Lowe said on Tuesday that the RBA is considering a rate cut to stimulate consumer spending while dealing with low inflation. The last cut to 1.5% was almost three years ago. Lowe also asked the government to address the low household income proposing tax relief as a solution. Australia has recorded 28 years of consecutive growth.
The United States and Japan will be discussing a new trade deal when president Trump visits Tokyo next week. Washington expressed concern on imported vehicles and parts that pose threats to national security but a decision on possible tariffs will be delayed to allow time for talks with both Japan and the European Union.