(03 September 2019) DAILY MARKET BRIEF 1：Watch GBP and Boris's next move
Today, FX traders are now intensely focused on UK. Like a car-crash its hard to take your eyes off the chaos. PM Johnsons masterful
strategy to shorten parliament’s chance to define Brexit, was pure political theatrics. Opposition countered with legislation seeking
to “stop the UK leaving the EU without a deal”. Yet clever Boris countered he would call for a snap general election on 14th October if MPs
succeed in seizing control of Commons agenda. GBPUSD bear trend persisted breaking 1.200 psychological support. Part of the pairs
weakness can be attributed to USD broad strengthen, but GBP weakness outpaced G10 peers. Threats from Tory MP who voted against the whip will
face deselections increased the likelihood the legislation fails. However, there is a risk of wide insubordination, based on the x-PM
Teresa May experience. The timelines for no no-deal legislation getting through both Houses are extremely tight, rising the uncertainty
level. Despite the noise, the probability of a no-deal exit remains the highest outcome in our view. In this scenario, we would expect the BoE
to jump into action to stabilize the economy with significant interest rate cuts. Yields on 10yr gilts fell to record low at 0.382%, on news of
a potential early election. This would further pressure UK yield curve and drive GBP lower. Worry about overcrowding in GBP is unfounded as
short positioning in the past has been greater. No-Deal Brexit is mostly but not fully priced into. The further downside in GBP against CHF
and JPY looks likely given the political uncertainty market is facing this critical week.
By Peter Rosenstreich
