Pound Exhibits Performance in Years

Although the text of the speech was leaked early, UK Prime Minister Theresa May took markets by surprise on Tuesday when she confirmed the UK Supreme Court’s ruling on the matter of Brexit approval.  While she is able to proceed with the triggering of Article 50 to begin exit negotiations, any final deal must be voted on by both houses of Parliament.

Although the UK Conservatives hold a majority in the House of Commons, the House of Lords might present some resistance despite the fact that no vote on the matter is anticipated before 2019.  The possibility that the UK will not be exiting from the European Union was enough to spark the best rally in the Pound since 2008, with GBPUSD climbing nearly 400 pips from session lows.

The rally in the Pound sent the FTSE 100 experiencing the worst loss since the referendum over the summer.

In another sign that the European Central Bank may gradually be able to taper its asset purchase program further now that deflationary risks have been averted, German consumer prices rose to the highest point since 2013.  According to the Federal Statistics Office, German headline consumer inflation rose to 1.70% during December, marking a sharp rise from the 0.80% reported back in November.

Cost of goods, namely food and energy, were the primary drivers of the gains, contributing 1.80% to the upside in the figure while services costs rose by 1.50% through the end of December.  The rebound in oil prices in particular has helped catalyze the upside in the figure, potentially suggesting that the ECB may remove accommodation earlier than planned after opting to extend asset purchases through December.

After a strong performance on Tuesday, EURUSD is pulling back modestly from the prior session’s gains.