Daily Currency Update

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Brexit set to dominate markets once again

GBP - British Pound

Fresh from the announcement that Parliament will be prorogued the market once again has it eyes on the House of Commons where a showdown between the Government and the 'rebel alliance' is set to play out. Furious that Johnson is suspending Parliament, MPs will have a a small window of opportunity on Tuesday and Wednesday to pass legislation to force an extension if a deal with the EU is not reached. To add to the chaos, Boris Johnson this morning has apparently threatened to remove the party whip from any Tory MP who votes against the government and stop them from standing in the next general election. Whilst a reaction from the 'rebel alliance' is expected it is the threat from Johnson regarding expelling MPs that is perhaps most significant for the market and sterling watchers. Firstly, why would Johnson kick out Tory members with such a slim majority, and secondly, why would there be reference regarding not standing at the next election. Many forecasters think that the chances of another general election imminently sit around 40%. Whilst the pound had a strong week last week, particularly against the Euro, it could return to resembling an emerging market currency once again with high volatility and political uncertainty.

Key Movers

The torrid time for the Euro continued on Friday with EUR/USD breaking 1.10 for the first time since May 2017. This was partly due to Eurozone inflation sticking at the three year lows of 0.9%. With inflation so far from Mario Draghi's target of 2.0% the market is expecting that the ECB will be easing its monetary policy even further than its current levels. The fall in the Euro obviously prompted President Trump to tweet that this gives Europe "a big export and manufacturing advantage...and the Fed does NOTHING!'.

Over the weekend as well, the US implemented fresh tariffs on $110bn of Chinese imports even though discussions between both parties are still set to go ahead this month. This move has seen Asian equities open in the red whilst the Japanese Yen could once again benefit with a flight to safe assets.

Expected Ranges

GBP/USD: 1.2016 - 1.2175 ▼

GBP/EUR: 1.0940 - 1.1080 ▼

GBP/AUD: 1.7950 - 1.8095 ▼

GBP/NZD: 1.9150 - 1.9310 ▼