Headline risks to Pound Sterling are plentiful on Thursday the 13th October with markets keeping an eye on the legal challenge to the Government's exclusive right to trigger Article 50.
- The Pound to Euro exchange rate today: 1.1057, up from a low of 1.1026
- The Euro to Pound Sterling exchange rate today: 0.9045, down from a best of 0.9069
- The Pound to Dollar exchange rate today: 1.2199, up from a low of 1.2132
GBP remains a currency that is now trades almost exclusively on headlines concerning the country's upcoming Brexit from the European Union.
With headlines driving the currency we remain attuned to the newswires and the topic of the moment is the next stage in a legal challenge to the Government's right to trigger Article 50 without the consent of Parliament.
If the High Court sides with claimant and overturns May’s decision we would expect some movement in Sterling.
Whether it is lower on increased uncertainty, or lower on the assumption that perhaps Article 50 is not triggered at all, is hard to call at this stage.
Regardless, we believe any strength in the currency at this stage will remain almost purely technical in nature as it would take substantive news that points to a soft-Brexit to shift sentiment.
There is a danger therefore that the current stability we are seeing is an extension of this technical trading.
"The current situation is anything but stable and another slide would feed concern far more than it would help the UK's competitive position. And so, it's worth remaining short GBP vs both USD and EUR," says Kit Juckes at Societe Generale in London.
Also note that Nicola Sturgeon has announced her administration would soon issue a new referendum bill in a fresh threat to break up the UK.
“I am determined that Scotland will have the ability to reconsider the question of independence - and to do so before the UK leaves the EU - if that is necessary to protect our country’s interests," Sturgeon told delegates at the SNP conference.
This appears to be a response to hard-liners within the SNP pressuring Sturgeon to deliver the party's raison d'etre and is an unwelcome challenge to the little stability the Pound is left teetering on.
Surely this generation have had more than its fair share of refernda?
Analysts Expect Further Weakness from Here
We have tapped the analysts community over recent hours and there remains a consensus for further declines.
The most striking view comes from Robert Wood, Kamal Sharma, Sebastien Cross and Mark Capleton at Bank of America Merrill Lynch Global Research.
The team have analysed previous bouts of GBP weakness and point out that the selling pressures are by no means over:
"A two-year timeline for negotiations once A50 has been triggered will keep GBP under pressure and risks further new multi-year lows. This view is supported by the analysis of previous peak-to-trough moves in GBP/USD through various UK idiosyncratic crises.
"On average, GBP/USD has fallen by 30% through those previous episodes. GBP/USD has already fallen by 14% since the Referendum. Should GBP/USD decline at a similar average monthly pace as it has done since July (-1.3%) until end-2017 and in line with previous peak-to-trough declines, GBP/USD could target 1.05."
Ipek Ozkardeskaya at London Capital Group believes the risks for a resumption of selling remain high:
“From a political point of view, the event risk in the UK remains high and the foreign exchange markets remain heavily biased on the short side of the pound market.”
Boris Schlossberg at BK Asset Management reckons Sterling will start to settle:
“After the massive volatility of the past few days GBP/USD may begin to settle a bit as the political process starts to churn. The pair is now contained in the broad 1.2000-1.2500 range and is likely to remain there until the terms of the negotiation begin to clear to the market.”
Jeremy Stetch at CIBC Markets is bearish:
“For now it remains hard to stand firm against GBP weakness, last week we wrote about a slide towards 1.1885, although we favoured a move towards such levels in weeks not days.
“We continue to expect investors to sell into any near term GBP rallies. However, should the UK courts prove limit the executive power of the Government, slowing or potentially even reversing the drive towards a ‘hard Brexit’, this may provide some respite from Sterling selling.
Carlo Alberto De Casa, Chief Analyst at ActivTrades believes a consistent positive newsflow is now needed
“The pound’s bounce was down to the positive news around MPs getting a say on the final EU deal in Parliament. Recovering half of the loss of yesterday against the greenback gave sterling much needed relief, but we don’t know how long it will stop the sterling withdrawal.
“Despite this news, the temporary pressure on selling the currency remains high – as does volatility. The markets will want more nuggets of good news cast up to in order to be more certain of the future post-Brexit landscape.”
Thought Leader: Pound Pricing in a Rock-Hard Brexit, and this is Problematic
Polemic's Pains, a trader-cum-blogger whose views we find rather pertinent at present sees it as problematic that markets allowed themselves to discount a rock-hard Brexit into the Pound in the first place.
The blogger, who has a background in inter-bank currency dealing, believes the incredible lows we have witnessed over recent days in Sterling are a reflection of the markets pricing an hard-Brexit.
This seems strange; the Pound looks to have been pushed too far and too hard on the assumption of a hard-Brexit scenario, and markets are waking up to the fact that the reality will likely be a lot softer.
And, the Americans are largely to blame for failing to pick up just how nuanced the debate over Brexit really is explains Polemic's Pains in his most recent note:
“The noise from the States has so many similarities to those expressed during the Eurocrisis.
“It was black and white, though mostly black. We can also note how the US time zone has seen the biggest legs down in GBP over the last couple of days. So any hint that the ideas discussed this evening may be a possibility should see the pound rise fast.
“If May's speech caused a 4% drop in Pound then that could easily be reversed on glimmers of hope for a soft exit, even if it was wrapped in barbed wire at the Tory Party conference.”
We now have a number of softer-Brexit headlines with reports that the UK government may be prepared to continue paying billions to Europe to retain access to markets and other rights.
Prime Minister May has also said she will be giving parliament a debate.
Pound Sterling Live reported on Monday that the next risks were to the upside for the currency as a swing to soft-Brexit was the next big topic for newsrooms to focus on.
Indeed, it is pointed out that what May and Rudd said at the Conservative Party conference outlined nothing inconsistent with current Swiss of Norwegian EU trade conditions.
For Polemic’s Pains, the swing back to soft-Brexit is a game changer:
“Yet the newsfeeds and Twittersphere haven't gone wild over it (yet). Probably because the narrative is for Brexit disaster and the idea of a soft exit doesn't fit with that narrative.
“Well, guess what? The narrative just changed.”