Summary:
- Pound recovers after house speaker stops MV III
- Brexit outcomes looking more positive for GBP
- Solid UK employment data
It’s been a dramatic couple of weeks for parliament, but even against this backdrop yesterday afternoon’s events came as a shock with the speaker denying PM May a third meaningful vote on her Brexit deal. John Bercow announced that he would not another vote if the motion was “substantially the same” in what comes as a blow to the government. The initial reaction saw the pound drop swiftly below the $1.32 handle but a recovery wasn’t too long in coming and while this may not be immediately better for sterling, in the long-run it could well be.
The GBPUSD pair dropped below $1.32 after Bercow announced he wouldn’t allow a third meaningful vote, but the market bounced from the 38.2-41.4% fib and after the recent jobs data retested the 23.6% level at 1.3284. Source: xStation
Brexit outcomes looking more positive for GBP
Theresa May had tried to frame the Brexit decision as her deal vs no deal, but with the already remote chances of a no-deal dropping further after parliament rejected this course of action last week, May’s deal could be seen as the most negative for the pound. While it would reduce uncertainty for now, it still represents a harder version of Brexit than the other broad alternatives (assuming no deal is off the table) such as a Norway model or even second referendum and it seems to have become a case of what was the best case for the pound is now the worst. As we move further along this spectrum of Brexit outcomes towards softer solutions, the outlook becomes increasingly positive for the pound. The main risk for sterling now appears to be if Theresa May were to resign, as this would likely see a more hardline Brexiteer replace her and this could once more raise the prospect of a no deal Brexit.
Solid employment data but Brexit still the main GBP driver
The most recent figures on the UK labour market have been released earlier than expected, catching some traders off guard with what is a pretty pleasing all round data point. Wages are often the thing to watch here, and a print of +3.4% compared to consensus forecasts of +3.2% represents a solid upside beat. The prior reading was also revised higher to 3.5% from 3.4% previously. In addition the unemployment rate unexpectedly fell to 3.9% and it appears that the labour market is still in remarkably in rude health despite the ongoing calamity surrounding Brexit. In terms of market reaction there has been a little pop higher in the pound, but the markets remain far more concerned with the latest on the Brexit front.
UK stocks made a potentially decisive break higher yesterday, with the FTSE moving up above both the prior swing resistance at 7260 and the 200 day SMA. Source: xStation
