The pound was in a more upbeat mood on Friday as Brexit panic eased and the pace of developments in Westminster slowed. Whilst we remain unsure as to exactly how many letters have been submitted to the Chairman of the 1922 Committee, the pound was willing to focus on today’s positive political developments. With confirmation from Michael Give and other Brexiteer cabinet ministers that they were willing to stay put, Theresa May’s positions looks less fragile, for now. This increased stability of May’s position boosted the pound back over $1.2850 for much of the session. One-month implied volatility on the pound has increased over 15%. To put that into perspective, it is double the implied volatility of the euro and is breaching levels reserved for emerging market currencies.
Speculation surrounding a vote of no confidence is expected to remain, with suggestions that a vote could take place on Tuesday. Political analysts believe that the odds are in Theresa May’s favour to win a vote of no confidence, purely because there is no suitable alternative who won’t spilt the party. However, even if Theresa May does win, she will still have the enormous task of trying to get the deal through Parliament, the prospects of which look dubious at best. The pound is fully aware of the mammoth task that lies ahead meaning any gains will be capped.
Dollar recovers from earlier decline
A weaker dollar supported the pound during the European session, following more dovish than expected comments from two Fed officials. However, these losses were reversed later in the session on stronger than forecast US manufacturing data. Next week the US economic calendar is light and Thursday is Thanksgiving, this is a time of year characterised by low liquidity in the market and will come at a time when there is plenty of scope for headlines on pensive topics potentially making for several volatile sessions.