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GBP/USD to Stay in Traders' Cross-Hairs After Court’s Brexit Ruling

GBP/USD to Stay in Traders' Cross-Hairs After Court’s Brexit Ruling

2016-11-03 11:40:00
Martin Essex, MSTA, Analyst
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Talking Points:

- High Court rules that British Parliament has right to vote on Brexit

- Supreme Court to hear appeal in December.

- British Pound could rally further if ruling is seen as delaying UK exit from EU.

Join Currency Strategist Christopher Vecchio today at 11:45 GMT for live coverage of the Bank of England rate decision and reaction to the UK court ruling. Join here.

The Pound’s jump against the Dollar after the High Court in London ruled that the British Parliament is entitled to vote on Brexit provided confirmation Thursday that politics rather than monetary policy or the economy will continue to dominate sterling exchange rates in the months ahead.

GBP/USD rose sharply after the verdict that Brexit is subject to a Parliamentary vote and that the UK government alone does not have the constitutional authority to inform Brussels that it is triggering Article 50 of the EU Treaty that will begin the formal process for the UK to leave the EU. This development is not a surprise: Currency Strategist Christopher Vecchio warned that the referendum wasn’t legally binding a week ahead of the Brexit vote; and Currency Analyst James Stanley highlighted the need for parliamentary approval the day of the Brexit vote.

Chart 1: GBP/USD 1m Chart (November 3, 2016)

GBP/USD to Stay in Traders' Cross-Hairs After Court’s Brexit Ruling

However, the Westminster government will now appeal the verdict to the Supreme Court, which has set aside time to hear its case in early December. This follows political pressure for Parliament to have a greater role in triggering Brexit after the British public voted to leave in a referendum on June 23.

UK Prime Minister Theresa May had argued that the government had the power but that was challenged by claimants led by investment manager and philanthropist Gina Miller, and the verdict raises the possibility that Mrs May will not now be able to invoke Article 50 by the end of March next year as she had intended. Any such delay would likely strengthen the Pound, as would a victory by the claimants next month.

Conversely, a government victory in the Supreme Court in Demeber would likely weaken it. Members of the House of Commons are likely to feel bound by the referendum result but there could be strong opposition in the House of Lords. In the meantime, however, GBP/USD is likely to be more affected by the US elections on November 8.

Upcoming Event Risk

Events

Date, Time (GMT)

Forecast

Previous

Italy Services PMI (Oct)

11/4, 08:45

51.5

50.7

Italy Composite PMI (Oct)

11/4, 08:45

51.5

51.1

France Services PMI (Oct F)

11/4, 08:50

52.1

52.1

France Composite PMI (Oct F)

11/4, 08:50

52.2

52.2

Germany Services PMI (Oct F)

11/4, 08:55

54.1

54.1

Germany Composite PMI (Oct F)

11/4, 08:55

55.1

55.1

Euro-Zone Services PMI (Oct F)

11/4, 09:00

53.5

53.5

Euro-Zone Composite PMI (Oct F)

11/4, 09:00

53.7

53.7

Euro-Zone Producer Prices (MoM) (Sep)

11/4, 10:00

0.0%

-0.2%

Euro-Zone Producer Prices (YoY) (Sep)

11/4, 10:00

-1.8%

-2.1%

Bank of England’s Kristin Forbes Speaks

11/4, 14:45

ECB’s Vitor Constancio Speaks

11/4, 17:00

Markets

UK Index / Exchange Rate

Change (Exchange Hours/GMT Session Rollover)

Market Close/Last

FTSE 100

-0.36%

6,821

GBP/USD

+0.88%

1.2414

EUR/GBP

-1.04%

0.8928

UK 10-Year Bond Yield

-0.77%

1.161%

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