Sterling Tumbles as MPs Return

Brexit worries weigh on the pound as Boris doubles-down; the dollar shrugs off impeachment and focuses on trade; central bankers come into focus today.

Previous Day's Market Highlights

Political developments returned to the fore on Wednesday, with MPs' return to Westminster bringing with it a fresh bout of Brexit concerns, dragging sterling lower. The Prime Minister used his first speech since the Supreme Court's declaration that Parliament's prorogation was null and void to invite opposition MPs to call a vote of no confidence in the government, in a third attempt to call a general election. However, opposition MPs remain unlikely to either table, or pass such a motion, due to ongoing concerns that a general election would be used to force through a no-deal divorce. Nonetheless, PM Johnson remained defiant; stating that the Supreme Court was "wrong", attacking opposition MPs, and doubling-down on his stance that the UK will leave the EU on 31st October, with or without a deal.  For the pound, escalating uncertainties resulted in significant downward pressure, as concerns over a no-deal departure rose once again. Sterling shed 1.05% against the dollar, the biggest 1-day fall since early-August, as the pound slid to the lowest levels in almost a fortnight. The pound chalked up a similar decline against the euro, settling around 0.7% lower against the common currency.
Meanwhile, the dollar marched higher, settling 0.7% higher against a basket of peers. The greenback's rally came despite concerns over the potential impeachment of President Trump persisting after the release of a transcript of a call between Trump and the Ukrainian President, which indicated that Trump may have urged an inquiry into corruption claims involving potential Democratic Presidential Candidate Joe Biden. Nonetheless, markets focused on trade rather than politics, with the dollar's strength coming as a result of Trump's comments that the US and China may be closer to a trade deal than first thought, in addition to positive noises around a US-Japan trade deal. A couple of less-dovish than expected FOMC speakers also helped the dollar along.
The dollar's rally resulted in all other G10 currencies losing ground. The euro closed 0.65% lower, as concerning signs emerged from the ECB. Hawkish Executive Board member Lautenschlager announced her resignation, more than 2 years before the end of her term, seemingly in opposition to September's stimulus package. Such a resignation raises further concerns over the unity of the ECB's Governing Council, something that will likely challenge incoming President Lagarde. Commodity currencies also struggled against the stronger dollar; the Aussie and Kiwi dollars slid 0.75%, while the Canadian dollar shed 0.3%.
In other markets, European equities were weighed down by mounting political concerns, resulting in the pan-continental Stoxx 600 closing 0.5% lower. Across the pond, major indices rallied sharply after the trade headlines mentioned above, with the benchmark S&P 500 gaining a shade over 0.6%. Finally, oil prices lost ground, with both a stronger dollar and a surprise inventory build contributing to the decline. Global benchmark Brent settled 1.03% lower, while US WTI crude settled down 1.4%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1290 1.1381 1.0930 3.96%
GBP/USD 1.2370 1.2583 1.1958 4.97%
EUR/USD 1.0955 1.1110 1.0926 1.66%
GBP/AUD 1.8315 1.8496 1.7792 3.81%
GBP/NZD 1.9265 2.0003 1.8996 5.03%
GBP/CAD 1.6390 1.6691 1.5956 4.40%

Today's Market Highlights

Political developments will continue to dominate in the day ahead, despite today's Commons Order Paper being a little barren after opposition MPs refused to table a confidence motion last night. Market participants will be on alert for any news related to a potential general election, with such headlines likely to come from this morning's general debate on the "principles of democracy and the rights of the electorate". Expect the government to use this as another opportunity to attempt to goad opposition parties into voting for an election.

Market participants will also be focused on political developments in the US throughout the day, particularly should any further headlines break regarding the potential impeachment of President Trump. Despite an impeachment remaining unlikely, due to the Senate being held by Republicans who are unlikely to impeach their own President, any further risks or concerns will result in solid demand for safe-havens. Trade will also remain in focus, particularly headlines to reinforce yesterday's positive news on US-China relations.
Meanwhile, on the data front, a host of releases are due from the US. Today's highlight will be the final estimate of 2nd quarter GDP figures, expected to remain unrevised from the previous estimate of 2% annualised QoQ growth. Assuming no revisions, the release will likely result in very little by way of market reaction. Also due from the US this afternoon will be Thursday's usual initial jobless claims figures, expected roughly in line with the 4-week average at 212,000, as well as this afternoon's pending home sales figures. No major releases are due from any other major economy, ensuring that focus will likely remain on the ongoing geopolitical issues of Brexit and US-China trade.
With economic releases lacking, increased attention will be paid to today's host of central bank speakers. Of particular interest will be addresses from ECB President Draghi and BoE Governor Carney, with investors set to parse the remarks for any clues as to the future monetary policy outlook. A host of Federal Reserve speakers are also due, with focus set to fall on remarks from Vice Chair Clarida and über-dovish voter Bullard. Remarks from non-voters Kaplan, Daly, Kashkari and Barkin will also be eyed, with markets continuing to price a more aggressive path of policy easing than implied by the Fed's latest dot plot.

Today's Economic Calendar

Time Currency Release Consensus Previous
1.30pm USD Initial Jobless Claims (Sep 20) 212k 208k
1.30pm USD Final GDP (Annualised QoQ - Q2) 2.0% 2.0%
2.30pm EUR ECB President Draghi Speech
2.35pm GBP BoE Gov. Carney Speech
3.00pm USD Pending Home Sales (MoM - Aug) 0.9% -2.5%