Sterling starts the week marginally lower after Johnson’s deal suffers another blow. On Saturday, MPs sat in parliament on a weekend for the first time since the Falklands war, and voted for the Letwin amendment. The amendment, which passed by 322 votes to 306, forces Johnson to request an extension from the EU via the Benn Act as Parliament will now withhold approval of the PM’s deal until the withdrawal bill implementing Brexit has been passed. The timeline looks murky this week given the weekend’s developments. Saturday’s Letwin amendment could be bypassed today should House Speaker John Bercow allow another attempt by the Government at passing a meaningful vote. If such an attempt were to succeed un-amended and was passed by Parliament, Johnson would no longer have to abide by the extension request and the government will table legal ratification of the proposed deal. However, should amendments alter the proposed deal at this point, by bypassing the extension request the UK could still slip out of the EU on October 31st without a deal. Many believe House speaker John Bercow will block a meaningful vote by Johnson today given the motion was already debated over the weekend. Bercow is subject to make a statement at around 15:30 BST today, but the parliamentary timetable is always subject to change. Even if Bercow allows the meaningful vote to occur, another amendment similar to Letwin’s over the weekend could also be passed seeking an extension regardless. If Bercow denies the Prime Minister’s request, Johnson could table a meaningful vote on Wednesday under the provision that an article 50 extension holds in the event of his withdrawal agreement failing to secure the required votes. The sequence of events is convoluted to say the least. This is reflected in GBPUSD this morning, which sits marginally lower, as markets still have no gauge to how parliament will likely vote when Johnson’s withdrawal agreement eventually gets put to the floor. The extension request via the Letwin amendment adds a layer of support by marginally reducing the probability of a no-deal exit, but the extension is yet to be granted by the EU. The path to the exit can still take many routes and sterling will likely trade sideways until parliament shows their support for which path to take.
The euro rallied against USD last week, boosted by the reduction in no-deal Brexit risk, which is also a threat to the European economy. CBS News’s “60 Minutes” aired an interview with former IMF head and incoming European Central Bank President Christine Lagarge, where she emphasized the costs of the US-China trade war to the global economy. Lagarde’s predecessor at the ECB, Mario Draghi, will give his last press conference as head of the central bank this Thursday. No policy action is expected after last week’s meeting featured a restart of asset purchases, deposit rate cuts, and a tiered deposit rate. Draghi is instead likely to focus on defending the loose monetary policy that has characterised his tenure, and address the seemingly open disagreement within the bank about asset purchases. Thursday will also see Purchasing Managers Index data released for major Eurozone economies.
The dollar sold off on Friday, and has had a mixed start to this week, regaining some lost ground against the pound, but weakening further to the Australian and New Zealand dollars. US politics will remain a potential source of potential volatility this week, as NATO defence ministers begin a two day meeting that will be tense in light of the US withdrawal from Syria this month and Turkey’s invasion of its southern neighbour. No headline data will be released today, but later in the week Durable Goods Orders and Purchasing Managers Indices will be released on Thursday.
The loonie rallied 0.58% over the course of the last trading week as strong CPI data added to positive USMCA statements and firm prior economic data. The narrative is clear, and with a broadly flagging US dollar, the loonie is primed to continue its current rally over the course of the month. Expectations for a Bank of Canada rate cut are infinitesimal compared to that of the Federal Reserve, suggesting another wave of loonie strength could be forthcoming in the form of monetary policy divergence at the end of the month. Today, Canadians take to the polls in the Federal Election where many believe the Liberal’s will fail to maintain their majority and the results will result in a coalition, or minority, leadership.