Good morning,

Just when it looked like the pound was going to have a relatively quiet end to a very bouncy week, the Bank of England steps in early doors to send the markets into a spin.

The BoE has long been seen as the junior partner with regards to Brexit-related headlines, simply because Westminster does a fantastic job of damaging the pound just by being in session. This morning at market open, however, Michael Saunders, a member of the monetary policy committee, commented that it was “quite plausible” that a rate cut could be implemented, even if a no-deal Brexit is avoided.

Needless to say, this barge to the front from the central bank immediately knocked GBPEUR down 0.60% to 1.1244 and GBPUSD down 0.65% to 1.2273 – with further selling possible when the rest of the European session starts trading the news and adjusting forecasts.

Whilst the markets digest this news, the focus will now be firmly back onto parliament, inflammatory language or not, to gauge the likelihood of avoiding no-deal – now with additional emphasis from the BoE.

Much recent debate has swirled lately on whether Johnson will adhere to the Burt-Benn amendment requiring him to ask for an extension as mentioned in the daily update yesterday. Essentially, the market will weigh up the possibility of this being a feint as suggested by Dominic Cummings or if Boris really is going to push the constitutional framework of the UK to the absolute brink.

Whatever the outcome inside parliament, the resulting disturbance of the seemingly calm waters for sterling could make today a very bad end to the week indeed.

Weekly moves

GBPUSD has seen three days of strong selling, down from 1.2503 on Tuesday to 1.2271 at the time of writing this – a strong US data print at 13.30 could easily compound this and leave the pound 2% down inside a week. GBPEUR has fared slightly better, keeping its head above the 1.1255 waterline for the majority of the week, discounting this morning’s shock news from the BoE. A poor day of trading today could see a break 1.1200 area, down 1.53% from Monday.

Have a great day.

Author: Joshua Haden-Jones, Senior Private Relationship Manager