Today marks a historic day in British politics as events in Parliament could either steer the UK to an almost guaranteed EU exit on Oct 31st or a general election as early as Oct 14th.
MP’s will vote today in the first stage of a plan to block a no deal Brexit. Prime Minister Boris Johnson has said removing no-deal from the table undermines his negotiation power with the European Union and makes the chance of reaching a universally acceptable deal almost impossible.
Johnson has threatened any members of his Conservative party who vote against the government with deselection and if he loses the vote, he will call for an early general election, saying he would never ask the EU for an extension to the Oct 31st deadline.
The election would be set for Oct 14th, a few days before the European Council summit on Oct 17th and 18th. Should the Conservatives win the election, Johnson will show EU leaders at the summit he has the backing of the UK and is serious about leaving without a deal, hoping this would force the EU to offer a deal which MP’s back at home will approve. If the Conservatives fail to win, the most likely outcome is an immediate extension to the Brexit deadline to Jan 31st and a possible second referendum. The pound has fallen overnight across the board on political uncertainty ahead of the Brexit showdown today.
Yesterday GBPUSD fell for most of the day and by over 1.1% from a high of 1.2174 to a low 1.2038, this morning has seen the pound drop under 1.20, briefly touching a 3-year low of 1.1965.
GBPEUR also fell throughout the day from an early morning high of 1.1074 to a low of 1.0975 in the afternoon. Additional declines were seen overnight as the pound dropped to a 2-week low of 1.0961.
Elsewhere the euro fell to 16-month lows against the US dollar as the impact of the US-China trade war took its toll on the European economy worrying investors about the outlook for Europe.
Data showed that German manufacturing remained in contraction in August as weaker demand overseas has pushed companies to scale back production and cut jobs. The uncertainty surrounding Brexit has also affected Europe as well as the UK and most experts believe the European Central Bank are certain to reduce interest rates at next week’s monetary policy meeting.
EURUSD dropped from 1.0992 to a low of 1.0958, before recovering slightly in the afternoon to close at 1.0975. However further falls were seen overnight as the pair dropped to a low of 1.0932 in the early hours of this morning.