Time is another Johnson enemy

The lack of it could stymie his bill and halt sterling’s advance

The concept of time is threatening Boris Johnson’s Brexit deal for a second time as MPs prepare for a Second Reading vote on whether they agree with its general principles. In turn, the pound has shown its first definitive hesitation in several sessions. The prime minister says he’ll scrap the bill entirely and go for a general election if defeated tonight.

Johnson is fighting on two fronts. Voting begins on two motions from around 7PM BST: firstly, on the general principles of the PM’s withdrawal agreement, secondly on whether MPs agree to the fast-track timetable the government wants to adopt to spirit the legislation through Parliament before 31^st October deadline. Soundings still suggest the deal could just scrape the required 320 votes. There’s less confidence that the timetable will be approved. Labour is instructing its MPs to vote against both motions. The 10 UK parliamentary MPs of Ireland’s DUP remain adamantly against Johnson’s deal too.

In context, Johnson’s election threat is not perceived as the biggest risk by markets. The PM has already lost two votes on having an election, failing to win the backing of two thirds of MPs as required. Labour has indicated that it would support an election only if no-deal was entirely off the cards. So the likeliest near-term outcome if the deal is voted down is more stalemate, more uncertainty.

As such, buyer’s remorse is beginning to show in the pound again. Some sort of retracement has been increasingly likely as sterling’s elevation from earlier-October lows extended almost to 8% in recent days. With measures of close-to-hand volatility expectations still at multi-year highs, in theory, if a clear reversal begins it could surge sharply.

First, sellers of sterling against the dollar must complete their push to see the rate below the first horizontal support since earlier this month. A successful break ought to be a clear signal that bears have regained control. Somewhat longer-term objectives are less important though an initial one may be support implied by hourly lows around $1.275 on 17^th October.

GBP/USD – Two-hourly

Source: City Index

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