Good morning,

GBP – No deal equals no hope for sterling

Sterling cracked through the 1.30 level yesterday against the US dollar, as much a product of sterling weakness as of dollar strength. The low of 1.2920 was an 11 month nadir for the currency pair with Liam Fox’s no-deal Brexit comments ringing in its ears. Hedging markets are pricing in additional pain for the pair with the cost of insuring against falls in GBPUSD in nine months i.e. around the time of the Article 50 deadline expiring, is at its highest for 17 months.

Of course much like with any insurance product the event may never occur but businesses and investors are looking to hedge that risk away and pay more for the ability to do so.
Despite the Bank of England hike last week, politics are the main driver of the pound and will be for many months to come. Some are looking for Friday’s GDP figure to rescue GBP but one has to ask just how much the first reading of Q2 GDP will matter in the event of a no-deal Brexit.
We wrote our thoughts on a no-deal Brexit and its potential impact on sterling on the WorldFirst blog last week and can be viewed here.

AUD – Happy to hold

The Reserve Bank of Australia left its main policy rate unchanged at 1.5% as expected earlier this morning. The central bank used their accompanying statement to keep its forecast for GDP growth unchanged and stick with its already positive outlook for the domestic jobs market. The outlook for inflation is also for it to move higher next year and in 2020 but local issues may be enough to keep inflation for the current quarter below estimates. That, alongside the obvious fears around the Chinese trade dispute with the US may be enough to keep the AUD on the back foot.
Have a great day.