By Lukman Otunuga, Research Analyst at FXTM
Market expectations remain elevated over Theresa May’s Brexit deal facing defeat in the House of Commons this evening.
Investors will be paying very close attention to the conclusion of the “meaningful vote” to determine what could happen next. An outcome where May loses by less than 100 votes could offer the government a lifeline to pass an amended Brexit deal through parliament on the second try. However, if May experiences a crushing defeat, this opens doors to Labour triggering a vote of no-confidence, an extension of Article 50, May seeking further concessions from the European Union, a snap election and in extreme scenarios a second referendum.
Market sentiment will most likely receive a boost if May unexpectedly wins the meaningful vote while a narrow loss is seen removing some uncertainty. A heavy defeat of May’s Brexit plan will negatively impact sentiment and severely punish the Pound.
The outcome of today’s vote will have little immediate impact on Nigeria but the longer-term outlook must not be overlooked. A negative outcome to Brexit that is followed by prolonged uncertainty is seen weakening the British Pound and UK economy considerably. This is bad news for Nigeria, especially when considering how Britain may reduce its investment to key projects in the nation.
EM currencies hit by caution…but Naira steady
Emerging market currencies entered the trading week on a cautious note as geopolitical risks and fears over slowing global growth left investors uneasy.
The performance across the EM currency space remains mixed with Indian Rupee, Malaysian Ringgit, and South African Rand depreciating. However, the Turkish Lira, Chinese Yuan, Indonesian Rupiah and Naira were able to stand tall against the Dollar. With Brexit-related uncertainty and political uncertainty in Washington among many other geopolitical risk factors draining investor confidence, EM currencies remain vulnerable to losses.
In Nigeria, investors will keep a close eye on the inflation report scheduled for release on Thursday. Persistent signs of rising inflationary pressures could encourage a shift in the CBN’s monetary policy stance this year.
Currency spotlight – GBPUSD
The Pound’s outlook hangs on what happens after the Brexit “meaningful vote” on Tuesday evening.
While the outcome of the vote remains open to question, it will certainly have a lasting impact on the British Pound. In regards to the technical perspective, the GBPUSD secured a weekly close above 1.2820, mostly due to Brexit noise. The 1.2820 level is seen acting as support that pushes prices towards 1.2920.