It is the day before the key Brexit vote and the pound is sinking. Sterling is trading below the key $1.3 level only 24 hours before Parliament is due to the vote on the latest Brexit proposal and though the Prime Minister is still valiantly trying to negotiate some last minute changes with the EU, she is neither making progress in Brussels nor at home. Parliament seems no closer to embracing Theresa May’s proposal and with only 17 days left to go until the current Article 50 deadline kicks in, the choice for MPs will be either a hard Brexit or postponing this date, and the latter option seems to be gathering more momentum.
The possibility of being able to avoid a hard Brexit should have been enough to keep the pound above the current level but instead the currency is reflecting the sinking feeling in the City about what will come next. UK stocks are the only market benefiting from the uncertainty this morning as the weaker pound is working in favour of export orientated blue chips.
BoE preps banks ready for no-deal Brexit
Always working on being ready for the worst case scenario the Bank of England has asked UK banks to triple their liquid assets so that they can buffer a financial shock if they need to. This would mean being able to withstand a situation in which banks don’t lend to one another for 100 days, rather than the normal 30 day period. And if this wasn’t enough to stress the City a UK think tank reported that close to 300 financial firms are in the process of moving nearly £1 trillion in assets from Britain into the EU, a trend that will weigh on the pound for months to come.
Dollar steady despite the negative economic news
In contrast, the dollar is holding its ground, but this has more to do with the pound’s and the euro’s weakness than an inherent dollar strength. Recent US economic news has started to show a far more negative picture than in late 2018. US retail sales have dropped to their lowest level in nine years, construction has sharply contracted and job creation seems to have ground to a halt. Granted, the numbers are exaggerated by the protracted government shutdown in December and January, but the underlying trend is still negative.
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