Pound slumps as Parliament suspended

Philip McHugh August 29th 2019 - 2 minute read

The pound tumbled yesterday as Boris Johnson asked the Queen to move her annual speech, effectively suspending Parliament until mid-October, a move which could prevent challenges against a no-deal Brexit.

Sterling appears to be licking its wounds this morning, with GBP/EUR muted at €1.1010, GBP/USD subdued at $1.2198 and GBP/CAD slipping to C$1.6228. GBP/AUD and GBP/NZD are rangebound at AU$1.8123 and NZ$1.9300 respectively.

Looking ahead, today’s German CPI figures are expected to show a drop in inflation, potentially exerting pressure on the euro.

What’s been happening?

The pound fell heavily on Wednesday, reversing Tuesday’s gains as markets responded to news that the UK government would ask the Queen to move the date of her annual speech in an attempt to prorogue Parliament.

While Prime Minister Boris Johnson maintained the move would secure education funds and ensure his administration’s policy plans made it into the Queen’s speech, the reaction of Sterling was adverse.

Investors perceived the controversial strategy as an effective attempt to frustrate cross-party efforts to pass legislation and block a no-deal Brexit.

The euro fared better yesterday, as markets cheered news that Italy’s political crisis may be approaching a resolution, with the centre-left Democratic Party (PD) and anti-establishment Five Star Movement agreeing to form an unlikely coalition.

Meanwhile, the US dollar enjoyed modest gains on Wednesday despite jittery market sentiment toward US-China trade tensions, with geopolitical uncertainty spurring investors to extend their positions in the safe-haven currency.
What’s coming up?

Today’s latest German CPI reading is expected to reveal an August inflation slowdown in the Eurozone’s largest economy, reversing the rampant price growth seen in June and July.

This may tip the euro as pressure mounts on the European Central Bank (ECB) for a substantial stimulus package in September.

For GBP investors the focus will remain firmly on Brexit today, with a bearish mood towards the pound likely to prevail amid heightened UK political uncertainty and the ever-increasing odds of a no-deal Brexit.

Finally, we may see the US dollar retreat this afternoon as expectations for the latest US GDP estimate forecast economic growth in the second quarter, revised down from 2.1% to 2%.

Written by
Philip McHugh

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