Foreign Exchange Daily Market Update 03/10/18

Wed, October 03, 2018

Pound struggles as a No-Deal or a second referendum looks stronger.

The risk of a second referendum or even another general election needs to be taken on board. The biggest headache is still that Britain will crash out of the EU without an economic agreement, with negotiations at a standstill and time running out.  Some analysts see sterling falling almost 8 percent to $1.20 on such an outcome.

At its recent annual conference, the Labour Party said it plans to vote against the Prime Minister’s exit agreement with the EU and push for a fresh national vote, while seeing a second election on Brexit as a way of avoiding a chaotic separation from the euro zone. Analysts see a 23% probability of a no-deal Brexit, slightly up from 20% in a similar poll held in July.

The Labour party may consider backing a second referendum.  It does increase the chances of” a no-deal situation leading to a second referendum

Even with increasing Brexit uncertainty, sterling has strengthened in the last month. While this was partly due to a weak dollar. Sterling was trading around $1.2980 on Tuesday

At the annual conservative Party conference, Boris Johnson the former Foreign Secretary won plaudits with an attack on May’s Brexit plan, but stopped short of calling for her to be removed as prime minister. The prime minister is preparing to make a significant new offer to the EU -- including compromises on the contentious Irish border issue -- to open the door to a deal, according to a senior British government official.

The pound traded at $1. 3011 against the dollar this morning, sterling traded at 1.1233 against the Euro.

Data to look out today.   

15:00 USD Non-manufacturing services.  

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