Sterling takes a pounding as UK Parliament to be suspended
Talk about volatility! Last week was a real uppy-downy-slightly-uppy, kind of week for the poor old GBP, which is probably feeling a little battered and bruised at this point. As you may have heard, UK PM Boris Johnson recently delivered a big blow to anyone still hoping to get away from a ‘No Deal’ Brexit. What happened? Why? And what did the markets make of it? Let’s jump in.
Preparation for Parliamentary Prorogation
…now say that twice as fast!
An extremely bold, some would say (and did!) dangerous, unconstitutional or even illegal strategy was executed by BoJo last week, as he moved to call an end to the current Parliament session and welcome in a new one. This process — known officially as prorogation — comes with the added complication of suspending Parliament from sitting for five weeks. But that’s not just any five weeks. It’s five insanely critical weeks that lead up to the 31st of October Brexit deadline, when the UK will leave the EU with or without a deal.
Many hoped that the intervening time would be filled with negotiations, bargaining and just a smidgeon of hope that the UK might not crash out of the EU with nothing, landing head-first on ‘the other side’.
Time is constantly ticking (you can almost hear it now!) and many viewed this as a move by the pro-Leave PM as a way of snuffing out any hope of a deal, delay, or even the cancellation of Brexit.
A bumpy ride for GBP
Sterling tumbled by more than a cent at one stage on Wednesday, hitting $1.2155. The pound also weakened against the euro, dropping below €1.1 and heading back to the 10-year low struck earlier this month. Ouch.
Speaking to BBC Radio Four, Simon Derrick, chief currency strategist at the Bank of New York Mellon said, “Over the last few weeks there was a clear level of rising concern over what will happen in late September and early October”. He went on to state that there is a possibility for sharp moves in the near future, with a slide to $1.20 not impossible.
Hold on to your hats, GBP traders!
Key events this week
Just about the only guarantee you’ll find in trading is that there’s never a dull moment in the financial markets, something is always happening. Because of that, we like to drop all the most important events for the coming week right here, where you can gobble them up in one, easily digestible mouthful. So, here’s what coming up this week.
● We kick off the week with Manufacturing Monday, as both the German and UK Manufacturing PMIs for August are announced, impacting the EUR and GBP markets, alike.
● Monday also sees Australia announce its Retail Sales (MoM) for July. One to watch, if the AUD floats your boat.
● The UK’s Construction PMI is announced on Tuesday, along with the US’ ISM Manufacturing PMI for August. A lot of juicy information and potentially a bumper day for ‘Cable’ (GBP/USD) traders.
● Another busy day for the UK on Wednesday sees the release of the Composite PMI and Services PMI. Both give a really good snapshot of the health of the UK economy. It’ll be interesting to see if last week’s events will affect these figures and by how much.
● A bumper Thursday for all you USD traders out there, as we’ll see the ADP Nonfarm Employment Change + ISM Non-Manufacturing PMI + Crude Oil Inventories. Talk about putting all your ducks bucks in a row!
● Finally, Friday is another one for USD enthusiasts. With the latest Nonfarm Payroll release, along with the August Employment Rate.
It’s pretty safe to say that you should keep an eye on all of those events, watch for potential price movements; and, as always, be careful out there!
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