FX round-up: Sterling ekes out small gain as PM sets out 'Plan B'

Sterling managed to eke out a small gain at the start of the week, even as the Prime Minister set out her 'Plan B' to Parliament, although the market reaction was very limited, partly due to light trading volumes, given the absence of US traders from their desks on Martin Luther King Jr. Day.

As of 1700 GMT, cable was 0.28% higher at 1.29006 and versus the single currency by 0.13% to 1.1345.

In parallel, the US dollar spot index was essentially unchanged at 96.320, with euro/dollar up by only 0.04% to 1.13695 and dollar/yen off by 0.11% to 109.62250.

Not unexpectedly, the 'Plan B' presented by the Prime Minister to Parliament was quite similar to her previous proposal.

More specifically, Theresa May said she would ask Brussels for guarantees that the UK would not be trapped in the Irish backstop permanently, promised to consult Parliament on the next phase of talks and to ensure environmental standards and workers' rights are maintained.

For Andrew Wishart at Capital Economics, none of the above was likely to garner her the support she needed from her own MPs, nor from the DUP, to vote for her plan.

Nevertheless, votes by MPs on the different amendments they propose may "provide a clearer guide to how Brexit will pan out, and what the resulting near-term impact on the economy would be."

Although cautious about making any predictions, Wishart put the odds of a softer Brexit (Norway-plus or a permanent customs union) at 70%, but in any case he believed that "there is scope for a rebound in GDP growth and the pound if a resolution is reached."