Trade and Brexit deals on hold


A Brexit deal is still elusive. A stable bias has emerged for the CNY
Philip Wee21 Oct 2019
    Photo credit: AFP Photo


    A Brexit deal remains elusive

    The British pound has retreated from last week’s high of 1.30 against the USD. Contrary to expectations, the UK House of Commons did not vote last Saturday on the Brexit deal agreed between Prime Minister Boris Johnson and the EU last week. Instead, UK lawmakers voted 322-306 for the Letwin amendment to withhold final approval of the deal until relevant legislation has been passed. The Democratic Unionist Party (DUP), which supports the Conservative Party, opposed the deal and voted for the Letwin amendment.

    As required by the Benn Act, Mr Johnson sent a letter to the EU on October 19 requesting for a Brexit extension except that he did not sign it. He also sent another two letters to the EU which may be considered in contempt of parliament. This has, however, not deterred Mr Johnson from seeking a meaningful vote on his deal today. The Labour Party has, meanwhile, invited the DUP for talks for the whole UK to remain in a customs union with the EU. Overall, don’t expect a quick or positive resolution to the Brexit drama soon. The odds for GBPUSD to revisit last Thursday’s low around 1.2750 cannot be dismissed. 

    A stable bias has emerged for the CNY

    The People’s Bank of China signalled that the Chinese yuan may be stabilising around current levels after its depreciation this year. The re-escalation of the trade war lifted USDCNY from 6.70 in April towards 7.20 in September. USDCNY has since retreated below 7.10 on resumption of China-US trade talks in the past couple of months. Negotiations are continuing and working towards deal signing at the APEC Summit in mid-November. China’s growth has, meanwhile, slowed to 6.0% YoY in 3Q19, the floor of this year’s official 6-6.5% forecast range. The IMF has predicted that China’s growth will slow to 5.8% in 2020 from a projected 6.1% this year. We have forecast USDCNY to stay in a 7.00-7.20 range into 2020.

     

    Philip Wee

    FX Strategist - G3 & Asia
    philipwee@dbs.com

     

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