Last week may be seen as a Brexit defining week which as you’d expect, had a significant knock on effect for Sterling. As Parliament returned from their summer recess and following business in the House, the opposition took control of the order of proceedings. During this time, they voted on the Hilary Benn bill, focusing on the PM seeking a delay to the 31 October Brexit deadline by three months if there is no new deal with the EU. This has subsequently been passed by the House of Lords and will return to the Commons for a final vote before receiving Royal Assent. Whilst the reality is that it does not remove the prospect of “no deal” totally it does subsequently move the UK a big step away from it. As a result, Sterling bounced off the lower levels since the flash crash of 2016, rebounding and pushing by close to two percent. Over the weekend, Cabinet member Amber Rudd resigned from the government, further increasing tensions. The government stated that it would seek to push the law to the limit to avoid having to ask for a further Brexit extension.
In the meantime, the key focus of the wider market was the US non-farm payrolls. Following the positive ADP employment report on Thursday there was some optimism of a positive number, however, the headline figure for August increased by 130,000 below market expectations of 160,000. The unemployment rate held at 3.7 percent but the average hourly earnings increased by 0.4% against an expectation of 0.3%. According to the CME group, the probability of 25 basis point cut next week remains above 90% chance.
Today much of the focus will remain on the UK as the Hilary Benn bill is expected to receive Royal Assent. It is expected that PM Johnson to re-submit a motion calling for a general election to be held in mid-October. However, this is likely to be rejected by the opposition as they will wait until an extension is granted and the deadline passed before engaging on this motion. Several news sources and analysts are saying a general election is now inevitable it is just a question of when.
In the meantime, PM Johnson is due to meet his Irish counterpart Varadkar, this will be their first face-to-face meeting with the Irish Taoiseach since becoming prime minister. In addition, the UK monthly GDP figures are due this morning. All eyes will be on this following Q2’s contraction. The monthly readings provide some early signposting for the quarterly reading. If Q3 reports another contraction, the UK will officially be in contraction.
Sterling continues to remain fragile to ongoing Brexit news and developments. If you have any questions, require a live execution price or some added information regarding a hedging strategy to reduce currency volatility, please contact us via email or directly on 0203 384 7280