Theresa May, UK PM. Image via Shutterstock

UK PM Turnaround on Brexit

Sterling has staged a recovery against the USD climbing by over 2% in response to news that UK PM May is to allow Government to “properly scrutinise” her Brexit strategy. The move, which has been described by a member of the Labour party as a significant “climb down” has prompted hopes that the Government will move away from a Hard Brexit and that retaining access to the single market will return as a priority.

PM May is facing increasing demand to allow MPs to vote on her Brexit plan and former Tory Attorney General Dominic Grieve has warned that the Government are likely to fail if they seek to push a deal through without gaining approval from the house of commons.

UK To Pay Into EUR Budget To Retain Single Market Access

GBP is very much politically driven at the moment with moves tending to be erratic. The recent escalation of downside in GBP is likely to have weighed on the Government’s thinking process with the BBC reporting that the Government is prepared to pay billions into the EU budget in order to maintain single market access.

This development comes as some MPs have threatened to join a case which is to be brought before the high court challenging the UK’s procedural steps for invoking Article 50. The case asserts that the triggering of the Article requires parliamentary approval in each of the UK jurisdictions, not just Westminster.

UK Events On Watch

Later today we have a raft of key UK political events with PM’s questions and a Commons vote on a motion for MPs to be able to scrutinise government’s Brexit plans.

Following the Government’s initial tough stance on rhetoric which saw GBP collapsing to trade more like an emerging market than a developed market, it is likely that the government will look to stabilise markets. There is of course still a lot of support for a Hard Brexit with the majority of the Conservative party looking for a clean break from Europe. Furthermore, it’s likely that should too much be conceded before the triggering of Article 50 occurs, that it will be perceived as granting the EU more power in negotiations.

Despite a softer tone from the government now, the future of the UK’s relationship with its main export partner remains highly uncertain and keeps the pressure on the investment outlook. This uncertainty and undermining of fixed asset investment are likely to reduce the growth potential of the UK economy and put further downward pressure on the UK’s current account deficit which now sits at -5.2% of GDP.

Indeed, speaking in Parliament today regarding Brexit, BOE’s Cunliffe said that he cannot rule out further financial market instability as more news about Brexit comes.

Positioning in Sterling moved into fresh record short levels last week as uncertainty continues to weigh heavily on investor sentiment.

Looking Ahead

Traders await the release of the September FOMC meeting minutes later today. The September FOMC saw the Fed keeping policy on hold as they decided to wait for evidence of further progress towards their goals. The Fed cited their expectations that a rate rise before the year end was likely provided that economic data continues to support, though of course, they remain data dependent.

USD continues to trade higher this week despite poor September NFP and Unemployment rate data released last week.The Greenback continues to derive support from a strengthening of Clinton’s lead in the polls following her victory in the second debate this week. Betting markets are now pricing an 80% likelihood of a Democratic Presidency as Trump continues to lose support from Republicans in the wake of his recent scandal involving lewd, derogatory remarks about women.