May promises the vote, pound still strong (Afternoon analysis 26.02.2019)

Today, the British currency was in the limelight due to the information on the Brexit. Its strong appreciation in recent days may continue, but there will most likely be significant fluctuations along the way. The GBP/PLN reached its highest level since May 2017, although the zloty gains slightly against other currencies as a result of an improvement in global sentiment.

Pronounced changes in the pound

The messages of the day concerned Brexit. Today, the pound gained significantly. Optimism was mainly related to the decreasing risk of hard Brexit. Prime Minister Theresa May promised the British Parliament in her afternoon speech that the vote will take place if no agreement is reached.

The vote on leaving the EU without agreement is due to take place on March 13th, and the day after that the vote on extending the negotiations will take place. In her speech today, however, Theresa May said that the extension of the negotiation phase would be limited and did not extend beyond the mid-June deadline. She also added that she would not wish to extend Article 50. Therefore, her view on the Brexit remains unchanged. For the market, the most important fact remains that the probability of negative scenarios for the pound is decreasing. The British currency continues to be heavily overestimated after the referendum on the Brexit, so the potential for growth remains high.

The pound's quotations may increase, but this does not mean that it will continue to appreciate from then on. Successive voting, negotiations with the EU and potentially even new elections in the UK will cause significant fluctuations in the British currency, including a likely shift away from current levels.

The GBP/USD exchange rate reached 1.3240, the highest since October, even before the beginning of the New York trading session. As a result, GBP/PLN quotations also rose to around 5.04, the highest level since May but 2017. In relation to other main currencies, the zloty even gained somewhat, although these were not big changes and were in the range of about 0.2-0.3%. It is also the effect of better sentiment on the broader market, which results from the progress in trade negotiations between the USA and China and from the decreasing risk of hard Brexit. These elements support the maintenance of the most recent increases in the equity market and prevent the dollar from appreciation. Later in the day, the dollar's volatility may increase due to the speech of the Fed's Chairman in the US Senate, but potentially the biggest changes can be observed in currency pairs with the pound.

Tomorrow's preview

At 4:00 p.m., the Census Bureau will publish data on machine orders in the industrial sector in the USA. The median of market expectations indicates an increase of 0.6% per month. However, these are the data for December, so there is little chance that they could have a significant impact on the dollar's quotations. The market's attention will most likely shift to Jerome Powell's speech in the US Senate. This will be the second day of the Federal Reserve Chairman's speech to the Committee on Banking, Housing and Urban Affairs, presenting the half-yearly report on monetary policy. Powell's comments may increase the fluctuation range of the US currency, although the chances of it being significantly affected are limited. The Federal Reserve will wait for economic data, including inflation, before making an interest rate decision.