Judgment For PM But No Redemption for Sterling
It has been another very bumpy week on the Brexit bus. The week began with a judgment that ushered in a defeat for the government. The Supreme Court found the Prime Minister's prorogation of parliament to be unlawful and Sterling soared to an 8 week high in the immediate aftermath of the delivery of that judgment. That level was not sustained however and the rate has steadily declined for the rest of the week.
The pace of Sterling's decline in Sterling accelerated on Friday following surprisingly dovish comments from the Bank of England. Michael Saunders, a member of the Monetary Policy Committee, said “I think it is quite plausible that the next move in [the] bank rate would be down rather than up.” This took the market by surprise because the Bank's previous long-standing stance, had been firmly that it would be guided by data and the next move therefore could be up or down.
And in the latest scenario, it now seems that the BOE may have to cut interest rates whether there is a Hard Brexit or not. He said the UK economy had slowed down significantly in this year. The diminished growth prospects, in his view, were enough to justify a rate cut without the Bank waiting for further confirmatory economic data. The next Bank of England interest rate decision, due on the 7th of November will therefore be watched with very keen interest. But then again, if Brexit did happen on the 31st of October, the reality is that the currency market will have long priced-in the interest rate movement well before that date.
To discuss how the above may affect you, please contact your Currency Dealer at Heritage Pay on +44 (0) 203 858 7274.
See you next week!