Sterling Weakens as Queen Approves PM's Plan to Suspend Parliament
What’s been happening?
Pound Sterling – UK Markets
The British pound suffered heavy losses against its major rivals on Wednesday after British Prime Minister Boris Johnson announced his plan to postpone the Queen’s speech will to October 14, causing speculations that the PM is aiming to prevent parliament from passing legislation to block no-deal Brexit. Although Johnson told Sky News that it was completely untrue that he was trying to sideline parliament on Brexit, the currency struggled to recover its losses.
Later in the day, the Privy Council announced that the Queen has approved proroguing of parliament in a statement that read: “Order proroguing Parliament no earlier than Monday 9th September and no later than Thursday 12th September 2019 to Monday 14th October 2019, and directing the Lord High Chancellor of Great Britain to prepare a Commission accordingly."
Commenting on British Prime Minister Boris Johnson's announcement, speaker of the lower house John Bercow said that Johnson's move was a "constitutional outrage." Meanwhile, British Brexit Secretary Barclay on Wednesday stated that the UK understands the need to protect the integrity of the single market and recognizes the concern about the risk of a backdoor to the single market, but noted that once the backstop is triggered, the UK could remain “locked in it forever.” Finally, Ireland's foreign minister, Simon Coveney, told reporters that the ratification of the Withdrawal Agreement was the only way to ensure an orderly Brexit. "Abolition of the backstop is something that we can't and won't support," Coveney added.
US Dollar – US Markets
There were no significant macroeconomic data releases from the US on Wednesday but the US Dollar Index stretched higher above the 98 handles as the selling pressure surrounding major European currencies allowed the greenback to find demand.
In a speech later in the day, "International economies are weaker, though, and uncertainty - particularly around trade - is elevated," Richmond Fed President Barkin said and added that the Fed was currently monitoring the impact of the July rate cut. Although Barkin doesn’t vote on monetary policy, he was asked about further Fed rate cuts following his speech and said that he was not yet persuaded on weak inflation part of the case but was watching risks to growth closely.
Euro – European Markets
The shared currency recovered a large part of this week’s losses against the pound sterling on Wednesday but posted modest losses vs the dollar. The data published from Germany on Wednesday showed that consumer confidence is expected to stay healthy in September with the GfK Consumer Confidence Index staying unchanged at 9.7 and coming in slightly better than the market expectation of 9.6. Other data from Germany revealed that import prices declined 0.2% in July on a monthly basis and dragged the annual change to -2.1% from -2% in June.
What’s coming up?
UK: There won’t be any macroeconomic data releases from the UK on Wednesday.
US: Richmond Fed President Barkin and San Francisco Fed President Daly will be delivering speeches.
EU: The ECB will release private loans and M3 money supply data on Wednesday, which are unlikely to have a significant impact on the euro. Markets will also be paying close attention to the GfK Consumer Confidence Survey from Germany.