The euro has broken outside of both near-term support and resistance, but remains a bear until it fa...
GBP up 300 pips on Johnson's Triple Blow
09/05/2019 9:59 am EST
The UK Parliament dealt a series of defeats to Boris Johnson and the chance of a no-deal Brexit, which pushed the British pound higher, reports Adam Button.
The U.S. Dollar Index extends broad selloff, U.S. manufacturing deepens woes alongside Europe, but it's Boris Johnson's triple defeat in Parliament that's dominating forex markets — sending the British pound (GBPUSD) up 300 pips from Tuesday's lows. UK Prime Minister Johnson was denied in a pair of votes that blocked a no-deal Brexit and an early election.
Johnson took three hits this week. First, he was damaged on Tuesday as the Conservatives officially lost majority in power following the defection of a Tory Member of Parliament to the Liberal Democrats. Yesterday Johnson was denied by a motion blocking a no-deal Brexit passed by rebel members of parliament, which was followed by his call for an election next month being rejected by Parliament.
Over the past two days, the cable shot up to 1.2255 from Tuesday's 1.1958 low. The combination of the eroding chance of a no-deal Brexit with broadening USD weakness have conspired into fueling the cable. An election is inevitable, a no-confidence on Johnson isn't ruled out and two-way risk is very much present.
On Tuesday, US ISM manufacturing index underscored that global manufacturing has moved from slowdown to recession. The U.S. index fell to 49.1 compared to the 51.2 estimate. It has been a dramatic slide from a cycle high of 61 last August and coincides with a decline in nearly every developed country. The index faces more trouble ahead with the measure of new orders falling to the lowest since 2012. US ADP on private sector jobs and services ISM are due on Thursday.
The European Central Bank continues to simmer in the background with ECB policy maker Francois Villeroy adding to the growing list of voices against more QE. A report suggested the ECB is preparing a rate cut package, longer guidance and tiering. The central bank is now in its quiet period.
The Bank of Canada held rates at 1.75% but the statement wasn't as dovish as expected and the loonie jumped. The main guidance of the statement continues to say that the current level of accommodation is appropriate while warning about “global developments” taking a toll on the domestic economy. Bank of Canada Deputy Governor Lawrence Schembri will offer further clarity in the days ahead but the commentary suggests the BOC is less likely to cut in October than the 62% priced into the market.
Thursday features a heavy focus on US data with ADP, factory orders and the services ISM all to come.
Adam Button is co-owner and managing director of ForexLive.com and a contributor at AshrafLaidi.com. You can see Ashraf’s daily analysis at www.AshrafLaidi.com and sign up for the Premium Insights. Ashraf's Tweet on indices here.
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