British Pound Drops as Scotland’s Sturgeon Threatens UK PM May

2017-10-27 05:00:00 Ilya Spivak

Talking Points:

Pound drops as Scotland’s Sturgeon threatens PM May on EU transition deal
US Dollar broadly higher as tax cut prospects boost Fed rate hike speculation
What do retail traders’ trade calls say about FX market trend? Find out here

The British Pound underperformed in Asia Pacific trade. The move came after Scotland First Minister Nicola Sturgeon said she will ask UK Prime Minister Theresa May to formally say if the government is pursuing a transition deal phasing out current EU rules for a further two years after Brexit.

Pursuing such a deal is a source of division between hardline Brexiteers and a more EU-friendly camp within the cabinet and answering Ms Sturgeon’s query would force May to choose a side. Presumably, this would translate into a major reshuffle that might throw negotiations ever-more off course.

Sturgeon even offered a cryptic threat, seemingly to pre-empt any delay tactics that the Prime Minister might employ. She said “we will start to see really regrettable things happening” if there isn’t clarity on the transition by year-end. It is unclear what this might mean in practice, but the ominous tone was not unnoticed.

The US Dollar continued to rise as hopes for inflationary tax cuts brightened, hinting that the Fed may be pushed into a steeper rate hike cycle than previously expected. The priced-in 2018 policy path implied in Fed Funds futures is now at its most hawkish in seven months.

This narrative may be encouraged further if third-quarter US GDP data beats consensus forecasts. Such an outcome would echo steady improvement in realized US data outcomes relative to expectations since mid-June. Analysts envision a downtick in the annualized growth rate, from 3.1 to 2.6 percent.

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