EU eyeing another flextension
Sterling retreated during the European session with fresh concerns that parliament would block rapid approval of the Brexit legislation. These fears increased after the government warned that it would not push ahead with the legislation if the timetable was rejected and push for a General Election instead with Sterling losing ground. The government won a House of Commons vote on the Brexit Bill second reading, but lost the timetable motion and then suspended parliamentary debate to await a response from the EU with markets assuming that the October 31st date could not be met. If the EU offers a short extension, the Bill is likely to return while a 3-month extension would potentially lead to an election. After touching 1.3000 against the Dollar after the first vote, Sterling dipped sharply. Elevated uncertainty continued to undermine the Pound with a retreat to near 1.2850 in the early hours of this morning before a slight recovery with the Euro near 1.1560.
US existing home sales declined slightly to 5.38mn for September from 5.50mn the previous month and slightly below consensus forecasts. The Richmond Federal Reserve (Fed) manufacturing index strengthened to 8 for October from -9 the previous month with new orders and backlogs also recovering sharply on the month. Companies were more optimistic over the outlook while prices increased at a slower pace for the month.
The data had little impact with markets remaining extremely confident that there would be a rate cut at next week’s policy meeting. The dollar overall made headway, although the recovery primarily reflected fresh doubts over other major currencies.
The latest ECB survey recorded a slight easing of credit standards for mortgages and business loans while standards tightened slightly for consumer loans. There was a fresh dip in Brexit optimism during Tuesday which undermined the Euro and German yields also retreated from the 4-month highs recorded on Monday which curbed currency support.
The Euro failed to make further headway and retreated to below 1.1150 at the European close. Brexit concerns increased again after UK parliamentary votes and the Euro drifted lower to the 1.1120 area as a retreat in commodity currencies also helped underpin the US currency with little net change as we begin today trading session.