The Pound’s gains dissolved on Wednesady evening and throughout Thursday trading as investors prepare for yet more uncertainty, this albeit following an initial rally after Tuesday’s UK Supreme Court verdict quashing Prime Minister Boris Johnson’s suspension of parliament marked a big step back from a no-deal Brexit.
Sterling has fall this morning has been compounded as The Bank of England policymaker, Michael Saunders, has said that a cut to interest rates may be needed.
For the first 24 hours after the court ruled Johnson had acted unlawfully in proroguing parliament, sterling rallied. But a vitriolic parliamentary session on Wednesday made clear that the political deadlock over Brexit is far from broken, heralding a difficult few months for the pound and other British assets.
Investors doubt Brexit will happen at all next month. Odds on Johnson managing to strike a deal with Brussels are now at 5/1 compared with 7/2 last week, according to Betfair Exchange.
And odds on Johnson leaving Downing Street in 2019 have narrowed to 2/1 from 11/4 last week. Currency traders might see that as positive given his willingness to embrace an abrupt exit if a deal cannot be secured.
GBPUSD having risen more than 5% from a three-year low of below $1.20 on Sept. 3 to $1.2582 last week, and popping up half a cent on the Supreme Court ruling, the pound slipped back towards $1.23 on Thursday.
The ruling increased confidence in UK assets but the prospect of a general election and potential Corbyn government would unsettle things anew. Opposition leader Jeremy Corbyn’s Labour Party has promised nationalisation, higher taxation and tighter regulation.
The main risk seen by markets is that Johnson circumvents parliament’s wishes and manages to take the UK out of the EU by Oct. 31 without a deal.
Second is a general election by year-end. Opinion polls put Johnson’ Conservatives in the lead, with all that means for a Brexit crash, but markets are also wary of a Labour victory.
GBPUSD is trading at 1.2292 this morning at 09:30 GMT and GBPEUR trading at 1.1255.