Good morning,
GBP: Carry on regardless
Despite a weekend of rumour, we are no closer to knowing what happens next. For example, we don’t know how many letters Sir Graham Brady is supposed to have received expressing no confidence in Prime Minister Theresa May and so the Brexiteers – and her opponents – have failed to mount a successful challenge yet.
A leadership challenge to Theresa May is naturally a negative for sterling – anyone that the Conservatives now feel strong and unifying enough to lead the party will have had to have been a Brexit voter and advocate. Should that same candidate be a proponent of ‘no-deal is better than a bad/this deal’, then we are in for another round of pound weakness.
The parliamentary maths for the passage of the current deal also do not add up to a majority as it stands and that risk will continue to weigh on sterling. It has now become clear to us that we will have to start pricing in the vote being defeated and a scramble for a deal into the New Year.
So, what levels to watch out for in sterling in the coming days? GBPUSD is range bound at its current levels and will initially look for 1.2660 as support with a break of that level pointing to declines to as low as the 1.24s. Against the euro, we are looking at 1.11 and 1.0990 as levels of support with any gains capped at 1.1550.
Theresa May’s main challenge today is to sell the deal to UK businesses when she appears at a CBI event this morning at around 11am.
USD: Trade war rhetoric only increasing
The rhetoric between the US and China has heated up once again over the weekend despite comments on Friday from President Trump that he believes that an agreement between the two countries can be reached at the G20 meeting in Buenos Aires in two weekends time.
The catalyst for the strength of the US dollar this morning is a comment from Vice President Pence that nations should not buy Chinese debt, presumably on the basis that the Chinese would either default on their debt or one simply does not want to be in China’s pockets.
As long as the US authorities continue to play chicken with the US’s debt ceiling on a bi-annual basis then Vice President Pence’s comments do not carry much weight.
The APAC summit where Pence made these comments ended without a joint statement of the involved nations, a move that sent emerging market and commodity currencies lower through the Asian session.
Have a great day.