(30 October 2019 ) DAILY MARKET BRIEF 2:GBP set to close the month in style
The approval by EU leaders of a longer three-month extension until 31 January 2020 finally provided British MPs with good
reasons to support early parliamentary elections on 12 December, although Prime Minister Johnson had to find a way around the two-thirds
Fixed-term Parliaments Act in order to get support for the bill after a third failure on Monday. Despite being largely overshadowed by
Brexit, the race for December elections is expected to stay turbulent, with differing goals among main political forces. Yet even if PM
Johnson’s Conservative party were to win the support of voters and eventually ratify the Withdrawal Agreement, a post transition period
deadline should remain, as a definitive EU – UK relationship will then have to be negotiated. Sterling optimism should stay high in the
coming days as it currently trades at 5-month high.
With a backing of 438 MPs in favor of an early Christmas election and polls favoring the Tories with a tight 13% advance against Labor, it
seems that a divided electorate should redistribute the cards from historically leading political parties. In this context, coalitions
are likely to play a major role in the vote, with Liberal Democrats, Scottish National Party and Labor parties likely to challenge Brexit
intentions while a Scotland independence referendum could also be put on the table. In addition, after the entry into force of a
transitional period no later than the day after 31 January 2020, the UK will have to respect its financial commitment to the EU.
Contributions are estimated at $42 billion and are expected to be made by 31 December 2020, the official year-end date, which will most
likely be subject to further extensions of up to one or two years. Accordingly, Sterling confidence should stay firm for the time being, even
if further headwinds are expected after the divorce date.
GBP/USD is currently trading at 1.2886, rising by +4.85% in October, a 21-month high hike. Major resistance at 1.2984 (18/10/2019 high)
still remains.
By Vincent Mivelaz
