Sterling has made a good recovery in the past 24 hours, despite UK composite PMI data pointing to a real risk that the economy will fall into recession in Q3.
GBP/USD, which had traded as low as 1.196 yesterday morning, has bounced back to close to 1.22. The Dollar’s broad-based 0.6% sell-off to an eight-session low, following very weak ISM manufacturing PMI data yesterday evening, has flattered the rise in GBP/USD but GBP/EUR has also risen to 1.105 from as low as 1.094 yesterday in early trading.
Sterling briefly sold off this morning following the release of another weak set of composite PMI data. The index of economic activity slowed to 50.2 in August from 50.7 in July, with the July-August average of 50.35 below the Q2 average of 50.5 when UK GDP contracted 0.2% qoq.
But Sterling quickly resumed its recovery with markets seemingly more confident that a “no-deal” Brexit will be avoided after members of the House of Commons yesterday voted in favour to regain control of the parliamentary agenda. MPs are today scheduled to vote on a bill which would force the government to ask the EU for a 3-month extension of Article 50 negotiations, till the 31st January 2020, in the event of parliament failing to approve the Withdrawal Agreement by mid-October.
The British political situation remains extremely fluid, with Prime Minister Johnson having retaliated by threatening to call fresh general elections should parliament approve this bill. Whether a sufficient number of MPs would vote in favour of bringing forward elections currently due on 5th May 2022 and the outcome of such an election at best remain unclear at this stage.
