The highest civil court in Scotland ruled yesterday that it was unlawful for Boris Johnson to prorogue parliament. Clients may wish to pay attention to the next hearing in the Supreme Court on Tuesday 17th September.
Any developments here are likely to carry volatility for the pound especially as calls have been made for the Prime Minister to recall parliament or even resign. In effect, the Scottish court believes that Boris Johnson lied to the Queen.
Last night the Yellowhammer no deal document was released which states a “reasonable worst-case scenario” whilst the request for personal communications surrounding the proroguing of parliament was rejected.
Meanwhile more predictions continue to surface surrounding the prospect of a no deal Brexit. KPMG consultancy has predicted Britain would lose 1.5% growth and fall into its first recession in a decade if there is no deal with consumer spending hit badly.
Yael Selfin chief economist with KPMG said “With the Brexit debate poised on a knife-edge, the UK economy is now at a crossroads.”
Conservative MP Nigel Evans has stated there are about 20 ways which Boris Johnson could navigate around the bill that forces the government to ask for extension from the EU. Some ideas include ignoring the bill completely, sending a second letter to the EU, resign and let Jeremy Corbyn deliver the letter, find an alternative means to call an election or call a vote of no confidence in his own government. UK data is light as we end the week so those with pending currency requirements may wish to plan around all the latest developments surrounding Brexit.
The European Central Bank (ECB) meet today for the latest interest rate decision at 12:45. Expectation is for an interest rate cut after the central bank committed at the last meeting to a package of measures to help support inflation and economic growth in a bid to fight off a recession. The deposit rate is expected to be cut by 0.15% down from -0.4% where it currently stands.
A reintroduction of its asset purchasing scheme is also expected. However, there is ambiguity as to how much stimulus the ECB will in fact offer today which is keeping the markets guessing. George Cole an economist at Goldman Sachs stated that the risks of a disappointing outcome were high in terms of bond purchases as well as any deposit rate cut. He added that the package could disappoint in terms of its timing “or even whether it happens at all”.
ECB President Mario Draghi will be answering questions at the subsequent press conference where high volatility can often be seen for the euro.
The US dollar was boosted yesterday after US producer prices unexpectedly rose in August by a small margin of 0.1%. Nonetheless the data is welcome at a time when business confidence has sunk with the ongoing US China trade war denting trade.
There is a raft of US data today including inflation data and jobless claims. The markets will be keeping a close eye on the economic data ahead of the next Fed interest rate decision 17th- 18th September. The expectation is for another rate cut by 25 basis points after the last rate cut in July to try and inject some stimulus amidst the ongoing trade was with China.
President Donald Trump tweeted last week “The Fed should lower rates. They were WAY too early to raise, and Way too late to cut - and big dose quantitative tightening didn’t exactly help either. Where did I find this guy Jerome? Oh well, you can’t win them all!”
Those with US dollar requirements would be wise to plan around the September meeting as any rate change and the extent of that change will likely impact on the dollar.
The Canadian dollar continues to find support after the Bank of Canada (BoC) held interest rates last Wednesday. The central bank has not signalled any desire to cut interest rates unlike other major central banks, something which took the markets by surprise and which is helping to boost the Canadian dollar higher.
Mark McCormick head of FX strategy at TD securities said “We are seeing the position unwinding given that people were looking for a dovish Bank of Canada meeting. The other thing is that we are getting more momentum because risk appetite is improving as well.”
Oil prices have hit their highest level for six weeks which is also helping support the Canadian dollar. A meeting between OPEC and other oil producers later today could see added volatility for the Canadian dollar. Consumer Price Index inflation data is released next week and should help influence any further policy decisions from the Bank of Canada which may help direct the dollar going forward.
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