Sterling continued to react to Brexit developments, with all that had been said over the past couple of weeks, the re-opening of Parliament was always going to be key. Prior to this Sterling had dropped to the lowest levels since 2016 flash crash and prior to that since 1985 as the prospect of a “no deal” Brexit had increased. The fireworks started in the afternoon after the defection of Conservative MP Phillip Lee to the Liberal Democrats resulting in the Government losing its majority.
Late into the evening, PM Boris Johnson suffered his first setback as the Government was defeated by rebel Tories and opposition MPs who object to a no-deal Brexit. The Commons voted 328 to 301 to take control of the agenda, allowing them to bring a bill requesting a Brexit delay or make leaving with a deal a legal obligation. Following this defeat, PM Boris Johnson sacked the 21 Tory rebels for voting against the government but have a route back into the party should they revert their support. In PM Johnson statement, he once again warned his enemies that if they do not back down in today’s vote, he will go further and try to break up Parliament to trigger a general election. However, due to the fixed terms parliament act of 2011, this requires two-thirds of all MPs to vote for it. Labour Party Leader Jeremy Corbyn told the PM he could have the election but only once the bill taking the no-deal option completely "off the table" needs to be passed.
In the meantime, economic data continues to reflect a slowdown. In the UK the construction purchasing managers’ Index (PMI) suffered the sharpest drop in new orders since the depths of the financial crisis; this is in large due to the uncertainty of Brexit. Economic data from the US also soured as ISM manufacturing index declined by more than expected, posting the lowest reading since January 2016 and into the contract territory. The market may be continuing to price in a further Fed rate cut of 25 basis point this month.
For Sterling buyers and seller, the big focus remains on Brexit , in particular today's session in Parliament. PM Johnson is due to face a hostile crowd as takes part in his first prime minister's questions. Later in the day the House will debate Brexit delay bill with a vote expected close to 1700. If this passes, PM Johnson could then table a motion for a snap election. Sterling is likely to remain volatile as we are now in uncharted waters. We have a government that does not have a majority and therefore cannot command the House, but we also have a opposition who is not going to agree to a snap election unless certain criteria are met.
There is also key economic data set for release for the UK but this is likely to fly under the radar with the most recent developments in the political arena. The UK PMI services data is set for release, as the dominate sector this is closely watched as it tied to economic growth. It is expected that growth will continue albeit at a slightly slower rate. This afternoon, the Bank of England inflation hearing with the Treasury Committee is to take place. During this hearing the Bank of England Governor and several MPC members testify on inflation and the economic outlook before Parliament's Treasury Committee.
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