The UK PM lost the first and most critical battle in Parliament yesterday. MPs voted to block a no-deal Brexit.
Rebel Torry MPs joined other party MPs in a bid to take power from Boris Johnson and avoid a hard Brexit. Forex traders were initially thought to have taken the headlines with a positive tone, but it was the dollar’s weakness that allowed cable to surge over 100 pips.
Cable’s Surge Mainly Owed to a Weaker USD
The opposition supported another extension up until January 31st and not a snap election. Given that, one would think that market participants would have discounted earlier losses on the British pound to that end.
However, the market’s reaction was rather minimal as the UK PM threatened a snap election by October 15. And it was the dollar’s weakness that allowed GBPUSD to soar to fresh highs, as well as a technical rejection at the $1.20 psychological level.
The USD plummeted at the NY open after a long-awaited reaction to the additional tariffs on Chinese products, as well as a recessionary manufacturing PMI. The latter, of course, is seemingly a result of the trade war escalation.
Extention & Snap Election Bills to be Voted on Today
Parliamentarians made it clear, however, that before the Brexit delay bill passes, there won’t be any support in the Commons. And their vote is necessary as the motion requires a 2/3 majority.
This keeps the general election vote in the picture, but not before October 19th. That was the date on which MPs suggested the extension bill should be triggered should the UK government fail to agree with the EU.
Pound Higher as Trump Debacle Continues
The $1.20 rejection seems to suggest a reversal. Following a false breakout below the key level during the early London session yesterday at 1.1960, prices on GBPUSD formed a pin bar. Should the pair break above 1.2185, chances of a further slide would decrease. If the exchange rate crosses outside the upper descending trendline, GBPUSD could really turn around.