The Brexit circus will continue to keep you entertained
There wasn't any overly major news over the weekend involving the Brexit circus but there were certainly some signs of of things to look out for in the days/weeks ahead. Let's get a recap on what transpired over the past few days:
1. Cross-party bill sails through House of Lords, set to gain royal assent later today
2. Government vows to test the law "to its limits", may prompt legal challenges
3. Yet another election motion set to come about today
4. Amber Rudd (Cabinet member) resigns, accusing Boris Johnson of "political vandalism"
So, plenty of stuff to shout about - including Tory members starting to turn on speaker John Bercow - but nothing that really stands out. Perhaps Rudd's resignation may be a sign that things are rotten in the inside but we'll see.
For now, the pound is taking the headlines in stride for the most part. So, what's next?
Brexit delay bill set to gain royal assent
That will turn the bill into law and that means the government will have to comply with requesting for an extension if they cannot get a deal through by 19 October.
However, expect them to try and circumvent the request or make it look less honest/genuine as much as they can. One of the ideas being floated is for the government to formally request an extension from the European Union but also attach a secondary document saying that they don't want one approved.
Either that or they can just appeal towards one member from the EU27 to veto the extension and it all falls apart. So far, they need not do much because European officials are already being vocal about their stance on the matter.
In any case, efforts by the government to try and "request without requesting" an extension may land them in legal complications; possibly a judicial review by the Supreme Court may follow if we do see a legal battle.
But we'll cross that bridge when we come to it. There's still a lot of time between now and 19 October so maybe we'll see more surprises during the interim.
Boris Johnson to call for another election motion
He is going to ask lawmakers to vote on an early election again later today but much like before, expect the vote to fail. Opposition lawmakers have made it clear since last week that they won't back him until a Brexit extension has been granted.
As such, the proposed vote later will pretty much be dead-on-arrival yet again.
What about the prorogation of parliament?
Parliament could be prorogued from any time between today and Thursday but I would expect Boris Johnson to only officially call for it after the election motion is over and done with later today - in spite of it destined to fail.
Once the Brexit delay bill gains royal assent and turns into law, there's not much other reason to keep parliamentary proceedings going as they won't change anything ahead of the 19 October "soft deadline" to get a Brexit deal.
How will all of this impact the pound?
If last week was all about sequencing, this week (and the following ones) is more about what surprises may come our way ahead of the European Council meeting in October.
As seen in the developments above, everything is expected to play out accordingly from here until we get to the point where the government has to request for an extension, should they not be able to secure a Brexit deal by 19 October.
I mentioned last week that any run above 1.23 in cable represents a material shift in no-deal pricing sentiment and that should stay the case this week too (after payrolls and Powell offered nothing new).
Given current happenings, I don't think markets can easily discount a no-deal Brexit further from here as there is no semblance of a deal coming and European leaders are still not giving any firm indications of approving an extension.
Not to mention the UK government is insisting on testing the law "to its limits" to make an extension less appealing. That doesn't inspire added confidence to avoid a no-deal.
Until any of that changes, expect the pound to remain in limbo with limited upside potential but also not much reason to chase a major downside move below 1.20. It's all about headlines now but in between, expect more choppy trading and real money flows to step in if markets drive the pound a little beyond the extreme without headlines to back it up.
