Pound Pummelled By Latest Debate
GBP has been knocked lower in response to comments made during last night’s debate between the two Conservative party leadership candidates; Boris Johnson and Jeremy Hunt. Commenting on the issue of the Irish backstop, the aspect of the UK’s withdrawal deal with the EU which has drawn so much fierce opposition, both candidates essentially scrapped the idea of the backstop.
While the initial proposition for the backstop had been fiercely rejected by parliament on three separate occasions, there had been speculation that amendments to the clause, such as time limits or unilateral exit terms, could provide a solution.
Johnson & Hunt Dismiss Backstop
However, when asked whether he thought that such amendments would work to make the backstop acceptable to parliament, Johnson said:
“I’m not attracted to time limits or unilateral escape hatches or all these elaborate devices, glosses, codicils and so on that you could apply to the backstop.”
Indeed, Hunt also said that in his view,
“the backstop, as it is, is dead … I don’t think tweaking it with a time limit will do the trick, we’ve got to find a new way.”
“No Deal” Brexit Chances Increasing
These comments from the two candidates, one of whom will go on to become the next Prime Minister, have been taken as increasing the chances of the UK leaving the EU without a deal. Both politicians have said that they would leave the EU without a deal as a last resort. Although, while Johnson has promised to do so by the current Halloween deadline, Hunt has said that it would likely take more time.
Brexit Outlook Plaguing the BOE
These latest comments and the warning they give for the Brexit outlook will be frustrating for the Bank of England. The BOE has continued to highlight its desire to pursue further monetary policy tightening. However, due to the uncertainty of Brexit, have had to sit on its hands for now. Indeed, recently the BOE has been stressing the point that in the event of a no-deal Brexit, it could just as likely be forced to cut rates to stop the country from entering a recession.
Recent Data Showing Strength
Recent economic data has continued to surprise to the upside, however. Furthermore, the latest earnings and employment data for the UK, released today, showed that the unemployment rate remained unchanged at 3.8% in the three months to May, it’s lowest level since the 1970s.
Furthermore, wages jumped over the same period with total wages (including bonuses) rising to 3.4% from 3.2% prior and well above the expected 3.1%. Wages excluding bonuses rose even higher jumping to 3.6% from 3.4% prior and again, higher than the 3.5% forecasted. This increase marks the fastest growth in wages since 2008.
EURGBP is currently printing a record 11th consecutive winning week against GBP, highlighting the negative toll that Brexit uncertainty is having on GBP. EURGBP is currently testing the upper limit of the bearish channel from 2017 highs. Above here, the key level to watch is .9097, which has been key resistance over the last two years. A break of this level would then bring the 2017 highs into focus. To the downside, any retracement lower should find support back towards .8840s.