Sterling fell today as a top official at the Bank of England flagged a possible interest rate cut to offset continued Brexit uncertainty.
The pound fell to its lowest value against the dollar in almost three weeks as BoE official Michael Saunders said the Bank may lower interest rates.
“Quite why this is moving the markets is unknown to be honest with the biggest surprise being that this is seen as a surprise at all,” David Cheetham, chief market analyst at trader XTB, said.
“Economic data has been poor on the whole and while it looks like a technical recession will be avoided with a rebound to GDP growth probable in the 3rd quarter, the levels of activity seen in other metrics such as retail sales and PMIs suggest that the economy is still barely keeping its head above water.”
“This was the first clear statement that the Bank is considering a rate cut and the argument is not only Britain based but also reflects the weak state of global economic growth,” added City Index senior market analyst Fiona Cincotta.
Investors’ hopes also faded that the Supreme Court’s ruling earlier this week to undo parliament’s prorogation would steer the UK away from a no-deal Brexit.
Traders braced themselves for more Brexit uncertainty after a vicious back-and-forth unfolded in parliament yesterday, showing there are no signs political differences will heal.
The pound rallied on the first day after the Supreme Court ruled Prime Minister Boris Johnson’ suspension of parliament was unlawful, but has since sunk under fresh Brexit strife.
GBP fell 0.408 per cent against USD to $1.2275 today amid concerns the PM could find a way to deliver Brexit on 31 October while complying with legislation aimed at blocking no deal.
“There is a certain anxiety that Boris Johnson could find loopholes in the legislation to go around the law and deliver a no-deal Brexit anyway – which would be a real disaster for the pound sterling,” London Capital Group senior market analyst Ipek Ozkardeskaya said.
Yesterday City A.M. exclusively reported Johnson could use EU law to deliver Brexit by the Halloween departure deadline.
MPs passed the Benn Act earlier this month to force Johnson to seek a Brexit delay to 31 January if he has no deal by 19 October. It was aimed at preventing a no-deal departure.
But government insiders told City A.M. EU law holds supremacy over UK law, and means that Article 50 would supersede British legislation.
Michael Hewson, chief market analyst at CMC Markets, said the pound has been “hobbled” by the parliamentary deadlock over Brexit.
“Having gone to all the effort of forcing Parliament to reopen, through the courts MPs have managed to achieve the sum total of diddly squat over the past couple of days,” he said.
He added that lawmakers appear to be “devoid of solutions” to solve the current deadlock.
Instead, MPs offered abuse and retorts to each other in yesterday’s session, to the extent that Church of England bishops admonished politicians for a lack of respect of others’ opinions.
“In the last few days, the use of language, both in debates and outside parliament, has been unacceptable,” the bishops wrote.