Home Daily Commentaries May pulls vote which sees pound sink

May pulls vote which sees pound sink

Daily Currency Update

There are perhaps not enough superlatives or metaphors to describe the events currently unfolding within the halls of Westminster or Downing Street but an apt one may be is that the ‘left hand does not know what the right hand is doing’. This was perfectly illustrated early on Monday when a No. 10 spokesperson confirmed that the Meaningful Vote would go ahead today as Michael Gove and everyone assumed. What quickly transpired was that May had shelved the vote and taken the option to avoid a very heavy defeat. There was always the anticipation this week that sterling volatility would be the main theme but yesterday demonstrates once again the importance of considering every Brexit scenario. The pound has dropped to 18 month lows against the Dollar and 2.5 month lows against the Euro. Moving forward, Theresa May is now off back to Brussels to try and renegotiate the Irish backstop agreement but the EU have been adamant that this is the best Brexit deal on offer. Other scenarios to keep an eye out for include a no confidence vote in the government of a leadership challenge. The only thing that is certain within Brexit is that it is not binary whatsoever, it is not a choice between two options and it is not like either one of two scenarios will unfold.

In and amongst all of this Monday also saw the latest release of the UK’s GDP figures which showed flat growth for August and September before hitting the dizzying heights of 0.1% for October – hardly inspiring.

Key Movers

The main rhetoric out of the US at the moment revolves around the ongoing negotiations between the US and China as well as the selloff in equities. Yesterday US Treasury Secretary Stephen Mnuchin reportedly had a productive phone call with his Chinese counterpart but the elephant in the room still remains the arrest of Huawei’s CFO in Canada. GBP/USD remains driven by Brexit developments whilst USD/JPY could come under pressure as we move more and more towards the end of the year and investors look for certainty and reassurance. The market is still pricing around a 75% chance of a Fed hike next week but given the state of the markets at the moment do not be surprised if Jerome Powell holds off.

Eurozone investor confidence dropped negative for the first time seen December 2014 in a move that doesn’t come to as surprise to many given the uncertainty across Europe and where we currently sit in the economic cycle. Divisions within Italy are also beginning to emerge between Conte, Tria, Salvini and Di Maio as the first two look to persuade the others that the budget deficit target should be lowered. Elsewhere in France, Emmanuel Macron has promised to increase the minimum wage 7% in 2019 and subsidized by the government. As mentioned previously this move alongside the u-turn on fuel tax rises could place France within the scopes of the European Commission regarding its own budget deficit.

Business conditions and business confidence have dropped off recently in Australia as reiterated by the NAB’s latest survey however the Aussie dollar largely shrugged off this release. Instead the usual concerns around US-China relations dominate the Australian dollar. The arrest of Huawei’s CFO does not add a lot of confidence.

The Canadian dollar was still soaring following Friday’s job report where 94k jobs were added ahead of an expected 10.5k. There has been a small rally for the US dollar overnight though as US equities were buoyed by stock shares late at yesterday’s close.

The Kiwi has a tendency to strengthen in periods of heightened uncertainty and yesterday was no different. The New Zealand dollar finished yesterday on the front foot against the pound largely though due to the news out of Westminster.

Expected Ranges

  • GBP/USD: 1.2520 - 1.2840 ▼
  • GBP/EUR: 1.1040 - 1.1260 ▼
  • GBP/AUD: 1.7440 - 1.7725 ▼
  • GBP/CAD: 1.6760 - 1.7030 ▼
  • GBP/NZD: 1.8250 - 1.8590 ▼