The pound gained against many major currencies on the interbank market this week, including the euro, US dollar and Canadian dollar. In part, this is because the risk that there’ll be a ‘No Deal’ Brexit has receded.
This is because, this week, the EU agreed to extend the UK’s Brexit deadline by three months, to January 31st. Following this, MPs have decided to hold a UK general election, for December 12th.
This Monday 28th October, the President of the European Council, Donald Tusk, announced that the 27 EU member states had unanimously agreed to extend the UK’s Brexit deadline, up to the end of January 2020.
This came as some relief to the financial markets, because it avoided the risk of an “accidental” ‘No Deal’ Brexit yesterday, at the old deadline of October 31st.
In the event however, the EU wishes both to avoid being seen interfering in UK domestic politics, and to avoid being guilty of a ‘No Deal’. So the EU27 agreed the three month extension.
As a result of the EU’s deciding the Brexit extension, this Tuesday 29th October, MPs in Parliament voted by an overwhelming majority to hold a general election, in mid-December.
According to the polls, the ruling Conservative Party stands at 35%, 10% ahead of Jeremy Corbyn’s Labour Party. Traditionally, this would be enough to give the Tories a solid majority.
However, the pollsters got the 2017 election badly wrong, and it’s thought that there’s just as much chance of another “hung Parliament”, in which no single party gains a majority. So we’ll see the results in December 13th, and how this affects sterling.
Meanwhile, turning to the UK economy, it’s been a mixed week. UK retail sales fell by -10 in October, according to the Confederation of British Industry’s Distributive Trades survey, above forecasts for -20.
This suggests that Britain’s retail sector is holding up better than previously thought. Yet on the other hand, UK Consumer Confidence fell to -14 last month, said GfK, below September’s -13.
Next week’s key data includes the UK’s services sector performance, as well as the Bank of England’s latest interest rate decision, both of which may affect the pound.
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