In the Brexit stormed UK, political uncertainty overweighs any positive macro news
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- The National Conservative Convention saw former Foreign secretary Boris Johnson unexpectedly supporting Prime Minister Theresa May in original plan with another Brexit referendum being ruled out.
- Economic news in the UK is overshadowed by any kind of Brexit headline.
- The UK Labour party supports a new Brexit referendum and challenges ruling Conservatives.
With the deadline for the Brexit deal of the United Kingdom with the European Union approaching, the markets became extremely Brexit headlines sensitive. In fact, the Brexit-related news moved Sterling much more than any of the economic indicators published recently.
A typical example of Brexit news supporting Sterling emerged on Monday with GBP/USD sharply jumping up on a headline that The UK Prime Minister May is preparing to make a significant compromise to the EU regarding Northern Ireland border issue in order to get the Brexit deal with the EU. The UK Brexit Secretary Raab later scratched off the news as speculation but the headline will still likely encourage speculation that the UK could remain in the customs union, albeit temporarily, until the alternative solution is found.
The political uncertainty is set to limit the impact of any further good economic news on Sterling in the coming months with speculators left waiting for Brexit breaking news to emerge. The ongoing Conservative party annual conference is expected to provide plenty of opportunities.
First, it is the question of the Conservative party leadership that was likely to be challenged by the former Mayor of London and ex-Minister of Foreign affairs Boris Johnson. Johnson unexpectedly opted for support for Prime Minister Theresa May and her original Brexit plan. The unexpected statement from Boris Johnson saw Sterling leaping off a three-week low of 1.2941 marked earlier on Tuesday.
Second, it is a rather vague chance of reviving the idea proposed by the UK Labour party that has been talking of another Brexit referendum. Another Brexit referendum is the issue raised at the Labour Party conference last week but various senior Conservative Party members are leaning towards a new vote including former Home Secretary Rudd and Senior Tory Grieve.
At this stage, the UK Prime Minister May remains firmly against another referendum as this would question the credibility of the ongoing negotiations.
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