Pound off Lows as Fed, BoE Draw Closer

The pound is off its lows against the US dollar as are all currencies, but the currency was sent to a fresh 2 1/2 year lows after Boris Johnson's plan to force a showdown with the EU on a Brexit deal. Ashraf presents an alternate view below to the pound's decline in his tweet earlier today. Equity indices are down across the board after Trump referred to a "problem with China" in the trade talks. The Premium GBP short was allowed to be stopped out, while Thursday's EUR trade (issued moments before the ECB) is currently in +200 pips in the green. Ashraf will lay out his pre-FOMC strategies and video in the next 20 hours. Look out for key US data on core PCE, home sales and consumer confidence.

Back to the conventional explanation

Johnson's cabinet continues to take a hard line on the potential for a hard Brexit. Gove said the government is now operating on the assumption of a no-deal Brexit and Raab said they are 'turbo-charging' no-deal preparations and that the EU must change its 'stubborn' position. Johnson reiterated that he will take the UK out of the EU on October 31.

The FX market is beginning to think he's serious. Cable fell 160 pips on Monday in a free-fall through 1.2300 and to as low as 1.2119 Tuesday morning. Johnson was meeting with the Irish government in the hopes of pushing them towards a solution on the backstop but every public indication from all EU members is that the deal won't be re-opened.

Ultimately, parliament will have the final say and that will stop a no-deal Brexit but fears will be stoked in the meantime. Technically, cable has little support until the post-Brexit vote lows at 1.19 and EUR/GBP broke out to a 23-month high.

Elsewhere on Monday the market was remarkably stable as we await major data and central bank decisions (the most vital of which is Fed on Wednesday and BoE on Thursday). The Bank of Japan --which faced a delicate balancing act as it aimed to sound dovish enough to halt a yen rally while not moving on rates -- kept its policy settings unchanged overnight while cutting its inflation view.