UK politics in deadlock - traders looking to the next vote
GBP pairs are in limbo this morning, in what has been a frustrating morning for all FX pairs. Cable is likely to be trading inside 1.3060-1.3200 for now, though there seems to be little conviction to push aggressively one way or the other until we get some fresh news on what happens in the Brexit process.
So far, we have heard from EU officials that there will need to be a purpose for them to allow an extension to the exit date, and that this will either need to be a revocation of Article 50, a second referendum or a soft Brexit (ie the deal that is currently on the table).
Parliament returns this evening to vote on whether to allow a no deal Brexit or not, and this is widely expected to be rejected as there is a clear majority to avoid this in order to avoid the feared disruption which is expected to hurt businesses further. As uncertainty continues, the business community is calling out for a breakthrough, which continues to hold back investment and can threaten more divestment as we have seen from some of the Japanese carmakers recently.
If the vote is rejected tonight, the House of Commons will then decide on asking for an extension and perhaps what duration this may be, though details are thin on the ground at present as we need to get past this stage first.
Cable dipped under 1.3000 at the start of Asia this week, but Monday's concessions took the pair close to 1.3300 before reality set in and the Attorney General revealed that there is still a risk of being held inside the customs union which then hit Cable back into the low 1.3000's.
EUR/GBP set new lows this week when we dipped sharply under 0.8525-30, but we failed to close below here after bouncing off 0.8475. On the topside, 0.8645-65 continues to provide stern resistance as traders are a little more hopeful over the prospects of a softer Brexit given a parliamentary majority.
The uncertainty is not over yet, and frustrations may yet spill into GBP fears. If not, then we would have seen a stronger rally from yesterday but there is plenty of volatility left for this week - though it does not look like it from this morning's price action!