Sterling slides as PM Johnson considers suspending parliament

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28 August 2019


The pound gained ground against its major peers on Tuesday, the first trading day of the week in the UK, as opposition parties pledged to take steps that would assure the avoidance of a ‘no deal’ Brexit at the end of October.

K Prime Minister Boris Johnson has continued to stress that he intends to take Britain out of the European Union come what may on 31st October, albeit admitting over the weekend that the likelihood of leaving with a deal was ‘touch and go’. Opposition parties, led by Labour leader Jeremy Corbyn have, however, rallied in the past few days in order to block such an outcome. Corbyn held talks with other opposition parties on Tuesday in the hope of agreeing on a course of action that could delay the Brexit deadline.

Currency traders are not getting too carried away and remain sceptical as to whether this plan is actually plausible. News this morning that Boris Johnson was planning to ask the Queen to suspend parliament in order to force through an exit has got the market worried, causing the pound to shed over half a percent of its value this morning. While we remain largely optimistic over the possibility of a deal, the lack of time for parliament to find a solution means that the risk of a ‘no deal’ are undoubtedly heightened.

On the macroeconomics front, there’s very little in terms of major UK data out this week. Sterling will therefore continue to be driven almost entirely by Brexit news.

China dismisses speculation of trade progress

The euro slipped back below the 1.11 mark against the US dollar yesterday afternoon, with the safe-haven currencies broadly stronger across the board amid concerns over global trade. China’s foreign ministry dismissed the US’s claim that there had been contact between the two countries aimed towards de-escalating the trade war. This more-or-less evaporated most of the optimism following Donald Trump’s comments on Monday that suggested a deal over trade could be in the offing.

The next 24 hours or so are relatively light in terms of major data out of both sides of the Atlantic, aside a couple of speeches from Fed members Barkin and Daly. Activity will pick up pace from tomorrow, with revised US growth numbers set to be released on Thursday. Then on Friday, we’ll have fresh Eurozone inflation numbers for August. Given the importance of this data point for ECB monetary policy, investors will be watching closely for any signs of a pick up in inflationary pressures.

That being said, even a significant upside surprise here is unlikely to prevent the European Central Bank from easing policy when it next meets in September. Expectations for a 10 b.p rate cut and possible reintroduction of the QE programme are likely to keep gains for the euro limited in the very near term.