Sterling volatility gauge hit its highest level of 2019 on Thursday as Prime Minister Boris Johnson announced plans to shut down parliament for more than a month in September. Though it was weak yesterday, down 0.1% at one point against the dollar, investors are expecting large swings for the pound next week.
Members of parliament opposed to a no-deal scenario will have a narrow window next week in which to act, possibly by calling a vote of no confidence, but even this is not a guaranteed way to remove Johnson. If a Brexit deal is agreed before the October 31st deadline the pound will make a strong recovery as it has currently priced in a lot of the no-deal negativity. Most traders are aiming to protect themselves from the volatility rather than placing bets on a direction of movement.
GBPUSD opened at 1.2194 and dropped to a low of 1.2186 and made slight gains in the morning, before erasing these in the afternoon to close at 1.2200
GBPEUR opened at 1.1002 and rose slightly across the day, closing at a high of 1.1034
The US dollar was stronger on Thursday as renewed trade negotiations between the US and China were being discussed by officials. According to a Chinese commerce minister, the possibility of progress in these talks is heavily dependent on whether the US can create favourable conditions. The dollar index tracks the greenback against six major rivals was up 0.28% with safe-haven assets dropping.
The euro has struggled against the dollar with investors looked towards aggressive monetary easing by the European Central Bank. Yesterday’s poor economic data reinforced the need for stimulus and that the ECB would cut its benchmark rate in September. The euro fell 0.2% against the dollar.
EURUSD opened at 1.1080 and dropped steadily across the day, closing at a low of 1.1050