Market Analysis

EURGBP: Could the parliamentary break give GBP a boost?

The British Parliament is scheduled to go into summer recess on July 24 before re-convening on September 4. It remains to be seen whether that parliamentary recess will lead to fewer headlines about Brexit but there is a possibility those weeks might give the GBP some breathing space with the market more focused on UK economic data and Bank of England monetary policy than on headlines about Brexit. That said few would likely disagree with the view that GBP’s weakness on Tuesday, both against the USD and the euro (GBPUSD, EURGBP) was, to quite an extent, driven by risks associated with events in Westminster. But if the parliamentary recess does lead to fewer Brexit headlines in August, might it not be possible that some traders could also begin to wonder if the pound is due a bounce? Tuesday’s UK jobs data saw the unemployment rate at 4.2 per cent while the percentage of people in work rose to a record 75.7 per cent following the creation of 137,000 jobs in the 3 months to May. If the Bank of England is minded to raise interest rates next month, as the market seems to think may be the case, these kind of numbers could well be deployed to bolster the argument for such a move. With the European Central Bank on record as being on hold on interest rates until well into 2019, it is conceivable that traders could envisage a situation where EURGBP might head lower in August. While Bank of England Governor Mark Carney said on Tuesday that a no-deal Brexit in March 2019 would be a ‘material event’ for UK interest rates, that doesn’t necessarily preclude a rate hike in August. 2018. Indeed there’s an argument that a rate hike in August would leave the Bank of England with more room for manoeuvre on interest rates if the Brexit negotiations were to ultimately end without agreement.