The pound received a welcome boost yesterday after stronger than expected UK retail sales number surprised the markets. Retail sales moved into positive territory to 1% for the month on June far higher than the expected -0.3% which helped restore some confidence for the high street and pushed the pound higher.
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The pound nonetheless ends the week at the lower levels on the interbank rate having fallen to a 23 month low against the dollar and 6 month low against the euro earlier as the chances of a no deal Brexit continue to increase.
Next week is crucial for sterling when the next British Prime Minister is to be announced on Tuesday, with the new PM taking office on Wednesday. It’s not just the new Prime Minster that will change as a new cabinet will need to be formed which this time round will highly likely be in favour of a harder type of Brexit.
There could be movement for sterling exchange rates from here on over these coming weeks and months as new approaches to Brexit are put forward by a new cabinet.
Reports had emerged this week of plans that Boris Johnson could suspend parliament at the end of October to bypass MPs from stopping a no deal. Earlier this week Gina Miller the anti-Brexit campaigner wrote to him this week threatening legal action against the government stating that such a move would be “constitutionally unacceptable”.
This now appears to be nipped in the bud after the government was defeated by a majority of 41 on the Benn anti-prorogation amendment yesterday. The amendment blocks any suspension between 9th October and 18th December, unless a Northern Ireland executive is formed. Despite this, the pound failed to make any further movement. If anything, it makes a general election look more likely which adds another layer of uncertainty for the pound.
The threat of a no deal Brexit is becoming increasingly credible and continues to be negative for sterling exchange rates. The Brexit Secretary Stephen Barclay said this week that the chance of a no deal is “underpriced” whilst both Jeremy Hunt and Boris Johnson have agreed that the Irish backstop is dead. The Bank of England last year made its own no deal forecasts predicting interbank rates could fall below parity for both GBP to EUR and GBP to USD. Any statements from the incoming Prime Minister will likely see considerable market reaction next week and clients may wish to plan around this major event and consider taking the risk out of it. UK data is particularly light next week so the markets will predominantly be focussed on all the latest developments at Westminster in these interesting political times.
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