Sterling is poised, with GBP/USD trading around 1.29, ahead of a critical vote in the House of Commons tomorrow. Markets perhaps understandably paid little attention to the release yesterday of weak retail sales data for September.
The UK and EU agreed to a new Brexit deal yesterday and PM Johnson now has 24 hours to convince a majority of MPs (318, assuming no abstentions) to approve the deal. But the ruling Conservative Party is 33 seats short of a parliamentary majority and it remains unclear whether the 10 DUP members of parliament will support the deal. Sterling, which in the past week been among the most volatile major currencies in the world (second only to the Turkish Lira), is likely to remain on a knife edge for the next few days. Should parliament fail to approve the deal tomorrow, PM Johnson will be legally obliged to seek a further time extension from the EU in order to avoid the UK exiting the EU without a deal on 31st October.
Elsewhere the Dollar has weakened across the board in the past two sessions following the release of a spate of weak macro data, including retail sales (-0.3% mom, first fall since February) and Philadelphia Fed manufacturing indices and industrial output (yesterday). FOMC members still appear divided ahead of this month’s Fed policy meeting but market are pricing in a 20bp rate cut.
