With only the industry PMIs on deck this week, pound traders are free to keep their eyes glued to the tube to gauge how MPs might vote on the Brexit deal.
Brexit deal debates (starting Dec. 4)
Starting Tuesday, British members of parliament begin a week-long debate to discuss the terms of the Brexit transition deal that the EU already approved. Grab your popcorn, fellas!
Debates could get pretty heated as a number of MPs, even among PM May’s own political party, have strongly opposed several parts of the Brexit deal. Recall that a number of ministers have already resigned while dozens more have stated that they will vote against it.
The actual “meaningful” vote will take place on December 11 but the bickering this week should provide clues on whether or not No. 10 can garner enough support. She needs to get 320 votes to get the deal through, but the numbers aren’t looking so good.
Failing to secure the backing of the U.K. parliament could mean another attempt at a vote in three weeks, going back to the drawing board with the EU, more calls for a vote of no confidence, and possibly even a “no deal” scenario if the clock runs out.
Last Week’s Price Review
The pound is currently trailing behind in third-to-last place (as of 3 pm GMT). And if you guessed that Brexit had something to do with the pound’s weakness, then you’re right.
The pound started the week on a mixed noted, but began to show promise when it caught a bid during the European session.
There were no direct catalysts for the pound’s strength on Monday, but as noted in Monday’s London session recap, market analysts were pointing to Brexit-related optimism after the E.U. endorsed Theresa May’s Brexit deal during the E.U. Summit over the weekend.
Buying pressure would dissipated when Monday’s U.S. session rolled around, though. And there were even signs of bearish pressure after Trump said that as Theresa May’s Brexit deal currently stands, “they may not be able to trade with the US and I don’t think they want that at all, that would be a very big negative for the deal.”
Bulls would finally lose big to the bears during Tuesday’s Asian session. There were no fresh negative catalysts for the pound, but as noted in Tuesday’s London session recap, market analysts were blaming the pound’s weakness on Trump’s comments during Monday’s U.S. session.
Moving on, the pound eventually found support and began trading sideways for some time until bulls got revived during Wednesday’s London session. And as noted in Wednesday’s London session recap, the apparent catalyst was British Chancellor of the Exchequer Philip Hammond since he was trying to muster support for Theresa May’s Brexit deal while making the media rounds.
However, I also noted that British Labour MP John McDonnell was also speaking at around the same time that Hammond was getting some press time, and McDonnell said that a second Brexit referendum “might be an option we seize upon.” And according to some market analysts, the pound’s rise was supposedly due to hopes for a second Brexit referendum.
In any case, the pound would erase its gains ahead of BOE’s financial stability report and BOE Guv’nah Carney’s presser.
And when the BOE finally released its financial stability report and when Carney finally got a hold of the mic during Wednesday’s U.S. session, it was revealed that a disruptive Brexit could cause GDP to fall by 3% in the short-term and weaken the pound by 15%. A disorderly Brexit, meanwhile, could trigger an 8% slump in GDP and a whopping 25% drop in the pound’s value.
In other words, the BOE painted a rather bleak picture. Carney did try to cushion the BOE’s views and calm the markets when he stressed that such bleak scenarios are “not what’s most likely to happen.”
Interestingly enough, the pound’s price action in the wake of the BOE’s bleak outlook was actually mixed since Fed Chair Powell started talking shortly after Carney did. And Powell’s comments apparently had a bigger impact.
At any rate, sellers would give the pound a good pounding on Thursday. And as noted in Thursday’s London session recap, Carney was the apparent culprit.
Sure, he tried to defend himself from accusations that the BOE was trying to scare the market. However, Carney also said that “less than half the businesses in the country have initiated their contingency plans for a no-deal Brexit.”
Carney also said that “All the industries, all the infrastructure of the country” are not ready for a “no deal” Brexit “at this point in time.”
Aside from Carney’s comments, I also noted that the British media machine was hard at work and, well, here are some of the sample headlines that day.
— Allie Hodgkins-Brown (@AllieHBNews) November 28, 2018
Guardian front page, Thursday 29 November 2018: Warnings over economy deal blow to May's Brexit strategy pic.twitter.com/EDqFU5jzFc
— The Guardian (@guardian) November 28, 2018
— The Sun (@TheSun) November 28, 2018
Not very calming, yeah?
Aside from Carney and the British media machine, some market analysts were also blaming the pound’s slide on growing fears that Parliament won’t support Theresa May’s Brexit deal, which raises the odds for a “no deal” Brexit.
At any rate, support would eventually form when Thursday’s U.S. session rolled around. No apparent reason why, though.
After that, the pound then traded roughly sideways for the rest of the week.
Well, the pound did jump higher at the start of Friday’s London session, apparently because Conservative MP Liam Fox expressed his support for Theresa May’s Brexit deal while also urging his fellow MPs to provide support.
However, those gains were quickly wiped out and the pound resumed trading roughly sideways.