16/11/2018 - Resignations Rock Pound

GBP

Sterling was sent on a nosedive on Thursday after a series of resignations rocked the government and threw into doubt the long awaited Brexit agreement, just hours after it was unveiled. The pound began its tumble off the back of the shock news that Brexit Minister Dominic Raab had resigned in protest at the draft deal. Shortly after, three ministers followed suit. This included a second cabinet minister, Esther McVey.

Traders and Investors were well and truly spooked by the reception of the agreement as fears centred on May’s hard-fought Brexit deal collapsing. There was darkened outlook for Britain’s economic future, as investors all but priced out a rate hike by the Bank of England next year. The cost of insuring exposure to Britain’s sovereign debt also rose to its highest level in two years.

The market now casts its eyes to whether Theresa May will survive a vote of no-confidence. Markets had initially priced in some opposition to the draft deal, but the round of resignations and letters of no-confidence unleashed a fresh wave of volatility. These concerns on the leadership were reflected in the foreign exchange derivative markets, where three and six month gauges of expected volatility in the Pound spiked to their highest levels in two years.

At the end of European trading, Theresa May held a press conference where she tried to stem doubts over the deal and her ability to lead the nation, but this was largely overlooked by traders. Fears amongst traders now centre around the possibility that May’s leadership is now in serious jeopardy.

USD

The United States imposed economic sanctions on 17 Saudi officials on Thursday for their role in the killing of Saudi journalist Jamal Khashoggi, as Saudi Arabia’s public prosecutor sought the death penalty for five suspects in the murder.

The U.S. Treasury Department sanctions were the first concrete response by the Trump administration to Khashoggi’s death in the Saudi consulate in Turkey in October.

Among those sanctioned were Saud al-Qahtani, who has been removed from his position as a top aide to the powerful Crown Prince Mohammed bin Salman, as well as the Saudi Consul General Mohammad al-Otaibi and members of a 15-person team Turkey has identified as being involved.

The measure was unusual for Washington, which rarely imposes sanctions on Saudi nationals. The sanctions do not target the Riyadh government, an important U.S. security and economic ally. It also allows the administration to stop short of action that might affect lucrative U.S. arms deals with Saudi Arabia that President Donald Trump has vowed to preserve.

The sanctions limit access to the U.S. financial system and freeze people’s assets. They will be implemented under an act which targets perpetrators of serious human rights abuses and corruption.

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10:00 - EUR: Consumer Price Index (YoY) (Oct); expected to remain unchanged at 2.2%