Acute political uncertainty and weak UK PMI data today conspired to temporarily push the GBP/USD cross to a 3-year low this morning of 1.196 before it rebounded in afternoon trading to near 1.21. Sterling had already lost some ground yesterday following the release of data showing that that the manufacturing Purchasing Managers Index (PMI) fell from 48.0 in July to 47.4 in August, its lowest level since mid-2012. Sterling took another hit this morning after the publication of the second weakest construction PMI data in over a decade (45.0 in August, down from 45.3 in July), with new orders collapsing to their lowest level since March 2009.
But the real albatross around the currency’s neck, as often the case in the past three years, has been Brexit-related uncertainty. Members of parliament today returned to the chamber after the summer recess and are due to vote later today on a bill which would force Prime Minister Johnson to seek a three-month delay to Article 50 negotiations to 31 January 2020 and effectively negate the risk of the UK leaving the EU without a deal on 31 October. The bill has a fair chance of going through as the Conservative Party-DUP alliance today lost its one-seat majority following the defection of a Conservative Party MP to the Liberal Democratic Party and a number of Conservative Party rebels have said they would vote in favour of the bill. However, it remains unclear how the government will react, with Prime Minister Johnson having threatened to hold an early general election on 14 October in a bid to stop rebels from blocking a “no-deal” Brexit.
