Pound Slips Below 1.2100 as Johnson Promises Hard Brexit

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Market Drivers August 20, 2019
BoJo reiterates commitment to hard Brexit
Markets in the summer stall
Nikkei 0.55% Dax 0.15%
UST 10Y 1.59%
Oil $56/bbl
Gold $1499/oz
BTCUSD $10750

Europe and Asia:
No Data

North America:
No Data

Its been a very quiet dealing session in Asian and early Europe today with virtually no eco data or fresh headlines on the tape as majors traded listlessly in very tight ranges with many players away for the final two weeks of summer.

The only discernible movement was in the pound which weakened below the 1,2100 on comments by Boris Johson that he was committed to taking the UK out of EU by the October 31st deadline regardless of whether there was a deal or not. Mr. Johnson is scheduled to hold talks with Macron and Merkel later this week, but if the talks fail to make any progress they could actually push cable lower on the market loss of faith in any deal before October.

President Trump waddled into the negotiation yesterday noting that he was enthused about a free trade pact between US and UK once Brexit took place, but any possible US/UK deal is very likely to run into massive snags on issues of agricultural subsidies but even more so will have almost no chance of being ratified by Congress which would view such a move as a threat to economic well being of Ireland.

In short a hard Brexit instead of allowing UK to freely create bilateral deals could leave it quite isolated in the G-20 universe and face the possible shortages of key commodities and medicines as customs duties and regulations delay the free flow of goods.

For now the market continues to view the whole saga as just more political posturing but with deadline quickly approaching any failure to make progress is likely to result in more volatility in the pair. So far the pound has managed to hold the post-referendum lows if 1.1900 but if markets sense that a no-deal Brexit may actually become a reality that level could quickly fall by the wayside as selling resumes with force.

Boris Schlossberg
Managing Director

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