The expected October volatility really kicked into the Sterling markets yesterday

4 October, 2019

Rob Bastin

After a relatively quiet start to the month, the expected October volatility really kicked into the Sterling markets yesterday as speculation on Brexit outcomes by end of the month begin to play out. The day began with losses for the pound following figures for UK Services sector which showed a 6-month low contraction at 49.5. The 50 level divides growth from expansion in this reading. UK combined PMI when taking into consideration construction and manufacturing is now at 48.8 from 49.7 previously, indicating that the UK economy may have shrunk by 0.1% in Q3 which would officially put the UK in a recession after 2 consecutive quarters of negative growth. These figures will be confirmed later this month.

The afternoon session, however, was a different story, as Boris Johnson delivered details of his Brexit deal proposal to the house of commons. Markets took some positivity from the new proposal with some speculation beginning that he just might be able to pull off a deal after all, however any degree of optimism in the media headlines has been quickly met by many other views that the proposed deal is simply for the sake of appearing to be trying for a deal and that the details are still a long way off from being agreeable by the EU. When currency movements occur on pure speculation (with little substance) then they are often short-lived and very fragile to being reversed, which is worth keeping in mind in these unpredictable and choppy markets. As with most information in the last few years when it comes to Brexit, we can find suitable opinions and predictions that suit all agendas or desired outcomes, and therefore the reality is the Brexit outcome by the end of this month remains as uncertain as ever. Will Boris really get a last-minute deal from the EU at the summit? Even if he does will parliament actually back it? If he doesn’t then will he abide by the new law and request an extension on 19th October? If he won’t then how does he plan to leave on 31st October? Will we see a vote of no confidence before the month is out?

No one can accurately answer these questions, and as such no-one can fully predict where the pound will come November. One thing for sure is that markets more than ready to react to the upcoming developments, and the current rate could be a pivotal level for not just the next few months, but the next few years. As such anyone with upcoming requirements would benefit from staying in close contact with your currency consultant so we can help you not be caught out with any adverse movements. For those who are brave enough to gamble the upcoming events, ask about our STOP-LOSS orders that could at least manage your risk should the gamble not pay off.

Today the main release of note is the all-important non-farm payroll employment figures for the US at 1:30 pm. The USD has enjoyed a strong year but is its strength coming to an end? The greenback has recently seen 34-year highs against GBP, 10 years highs against AUD, and 3-year highs against EURO. Many analysts feel these levels will be a turning point for the dollar with further rate cuts from the Fed expected in coming months as US employment and manufacturing output comes under renewed pressure. We can expect further volatility in cable this afternoon depending on these results.