Sterling slumped on Wednesday as investors prepared for further political uncertainty after the UK Supreme Court ruled that Prime Minister Boris Johnson had unlawfully prorogued parliament. Boris Johnson is expected to address the Commons this afternoon amid calls for his resignation from opposition groups. While the ruling has reduced the chances of the UK crashing out of the European Union without a deal, it has opened the door to further political uncertainty.
Commenting on this, chief investment officer at UBS Global Wealth Management, Mark Haefele noted:
“Predicting the ultimate outcome of Brexit remains difficult.
“As a result, the longer-term risk-return outlook for UK equities looks uncertain and we still advise being nimble on Sterling.”
Meanwhile, when parliament reconvened earlier today, the government’s chief legal advisor stated the government acted in “good faith” when it suspended parliament.
Speaking to MPs, Attorney General Goeffrey Cox said he was “disappointed” at the landmark ruling, but respected the judgement of the Supreme Court.
He then launched an attack at MPs, criticising them for being “too cowardly” to hold a general election, and called them a “disgrace”.
The GBP/EUR exchange rate declined even as yesterday’s German business confidence data provided cause for concern.
While the German IFO business climate and current assessment indexes improved on the month, the expectations index fell unexpectedly.
Economists also think the improvement in the IFO business climate index is likely temporary, as IFO President Clemens Fuest noted:
“The downturn is taking a breather. In manufacturing, the business climate has only one direction: downward.”
Added to this, economists have suggested the German economy is likely to shrink once again in the third quarter, dragging the country into a recession.
Looking ahead to Thursday, euro sentiment could be left dampened following the release of GfK’s German consumer confidence.
If consumer confidence edges lower in October amid fears the bloc’s largest economy is entering a recession, the single currency could fall.