Good morning,
As the summer recess draws to a close, and MP’s begin to return from their second homes in the countryside, angry protesters lie in wait outside the Palace of Westminster with slogans and signs at the ready. Most of the ire has been levelled at Boris Johnson personally, for last week’s prorogation of parliament, which greatly reduced the amount of time Parliament has to drive the UK away from no-deal and towards an extension.
Should those opposing no-deal not be able to timetable a vote in time; then there is, of course, the nuclear option, a vote of no-confidence.
This is where the pound has gained some of its breathing room in the short term, pushing it towards 1.1100 on GBPEUR and 1.2200 on the dollar, as some in the market begin to price in the chances of Johnson being turfed out of number 10 for a caretaker government.
This is where the waters become significantly muddier though; as even though the government’s working majority is only 1 MP, the opposition remains divided on a key point – its leadership.
The rebels’ ranks are mainly comprised of Labour MP’s, but also those of the SNP, Liberal Democrats, Change UK and Independents. When going over the numbers, it is obvious that they need to bolster their ranks with a handful of Europhile MP’s, the question is now how to entice them.
Herein is where the problem lies, as, so far, the no-confidence motion is being headed by the leader of the opposition, Jeremy Corbyn. So far, he has remained unflinching in his insistence that he leads any caretaker coalition, which, given his extreme far-left brand of politics, means gathering any Conservative support is highly unlikely. In addition, whilst the pound would benefit from a removal of no-deal and an extension, it too does not like the economic policies of Corbyn/McDonnell or the increased chances of a general election that could put them in charge with a majority.
Whilst the data calendar is quiet across global markets today, we do have manufacturing data due out for the UK at 9.30am; another poor reading could knock the wind from sterling’s sails in the absence of any political news before Parliament reopens tomorrow. Is it also Labour Day in the USA, meaning the dollar should also keep quiet – barring the release of a few rouge tweets from the President of course.
The pound is likely to become increasingly volatile in the week ahead, with tomorrow being the start point in the race to stop no-deal. Votes, speeches and even off-hand comments made by politicians can cause instant reactions, which are incredibly difficult to predict; unless you have friends in very high places.
Stay in touch with your account manager through this period, and if you haven’t been introduced to yours yet, call us on 0207 326 9120 at your earliest convince, we’d be happy to help.
Have a great day,