Good morning,

Yoyo trading for sterling

Yesterday was another dark day for sterling as another fresh wave of selling on very little news drove the pound to fresh non-flash crash lows. There was no new reason for sterling to be close on 2% lower on the session against the USD and 1.2% lower against the euro but that is where it found itself. Once again, this prompts the question of by how much more the Great British Peso as some are calling it can fall?

We have to think that there is still more uncertainty to be baked into the price as well as further monetary and fiscal policy manoeuvres by the Bank of England and Parliament to drive inflationary concerns. HSBC are talking about GBPUSD retreating as low as $1.10 by the end of next year and while most commentators are not that pessimistic there is still very little reason for people to buy sterling longer term apart from on the hope of some form of speculative bounce.

Debate not a vote

Overnight GBP has rebounded higher by its largest gain in nearly 2 months following the news that Theresa May will allow “a full and transparent” Commons debate before the Article 50 exit clause is activated, something that is pencilled in to have been completed by the end of Q1. This is not a promise of a vote on the terms of what Brexit may look like however and she will want to keep her cards very close to her chest until it is absolutely necessary for them to be flopped on to the table. We would have to hope that she is holding a pair of face cards by that time and not the 2 of clubs and an old rail ticket.

In the meantime, a debate is only a debate and will not keep speculators from taking the pound on again.

Honey? The kids are fighting again…

Political intrigue and backbiting between two important Brexit focused departments will also keep some volatility in the pound. The Telegraph is reporting comments from a senior Treasury official on Dr Liam Fox, the head of the newly created Department for International Trade: “Liam is the one who needs to watch his back. Of him and Philip Hammond, I know which is more sackable, and it’s not the chancellor.” “Liam is entitled to his belief that we would be better off outside the customs union, even if he doesn’t have any actual evidence to support that.”

Finally we must wait to see whether the legal case that is challenging on what basis Theresa May can trigger article 50 without approval from Parliament will succeed.

Chinese walls

Elsewhere, we are still seeing continued pressure on the yuan as the People’s Bank of China maintain a plan to devalue their currency via increasingly weak fixings. This all reminds me very much of People’s Bank of China policy back in 2010-12 when, only occasionally but often enough that it was viewed as a quixotic habit, they would announce a cut in interest rates or a loosening of reserve ratio requirements seconds before a Bank of England decision.

Are the Chinese using the cover of a bitter US election and the clown car that is UK politics to obfuscate their strategy of weakening the CNY?

Have a great day.