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Does Johnsons deal have enough legs to go through parliament?

18th October 2019 Market Update

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🇬🇧 GBP –  The deal is done, but does Johnson have enough friends to get the crucial votes he needs?
The pound remains extremely volatile and hard to predict, in another whirlwind day in the market yesterday which saw swings of up to 2% against a basket of currencies.
In his eyes, Johnson returns triumphant and ready to bring a new deal to vote in parliament tomorrow, which apparently addresses the contentious back stop issue, which has traditionally been the sticking point throughout these debates.
The pound took a tumble in early trading yesterday, as the DUP announced that there was no chance that they would support the new deal, pouring cold water on hopes that Brexit would be a done deal by 31st October. While the risk of a no-deal Brexit is now low, if a deal is not agreed on Saturday, Johnson could be forced to ask the EU for another extension, meaning more months of turmoil and back and forth debating.
During afternoon trading, the pound rebounded against a weaker USD, as worries about sub par economic data in the states came back into focus. If Johnson’s deal is rejected tomorrow, these could be best rates we see for some time.

🇪🇺 EUR – The Euro remains solid against weakness in other currencies, but the ECB will be desperate to bring Brexit to a conclusion
The Euro is on track to enjoy a third weekly advance against the USD which is up 0.8% from the start of the week. In terms of Brexit, a deal appears to be in place, needing approval from UK parliament among others which suggests that European Union leadership may have avoided the worst case, no-deal, hard Brexit scenario.
The Euro did dip yesterday against a possibly undervalued pound, as Brexit appear to be reaching some sort of conclusion.

Inflation and export data remains a concern for EU leaders, however things seem to be stabilising with consumption growth looking strong and the ECB new president Christine Lagarde pusing for more fiscal spending to stimulate the economy.

🇺🇸 USD –  The cracks are starting to appear in US economic data, as the trade war with China begins to take its toll. A string of recent weak economic data in the states confirms that their economy is slowing. The dollar index is down 1.7% from its peak in September, not helped by fact that Europe and the UK seem to be working well together and coming to the end of a lengthly Brexit process.

On the plus, employment data seems to have made a slight recovery, with less people continuing to be out of work that expected. Building permits were also up, showing that future construction work could help to support the economy.
With not much by way of data coming out from the US, the dollar could come under pressure today. Any Brexit set backs could help the dollar retrace its losses over the weekend though.

 

Summary:

GBP: Sterling drops after the DUP state that they cannot support the current deal
EUR: ECB Calls on local central banks to introduce monetary stimulus measures
USD: Further calls for rate cut.


 

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Darren Kilner

Darren Kilner

Darren is Head of Dealing at FairFX. Darren lives and breaths FX, his Mastermind topics are G8 currencies and economic forecasts.

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