The GBP fell to a 27-month low against the dollar and to new six-month lows versus the euro, extending losses as the two candidates to be UK’s next prime minister took a harder Brexit stance. Their position appears to be leaving European Union on October 31 without any transition trading agreements in place priced the GBP as higher risk leading to it weakening 0.8% to $1.2409 the lowest since April 2017 repeating the "flash crash" on Jan. 3. The pound fell 0.5% to a low of 90.42 pence against the euro, the lowest since Jan. 11. That drop would potentially force the Bank of England to cut interest rates to stave off economic catastrophe. Sterling which already fell half a percent on Monday is now headed for its biggest one-day fall since March after former foreign secretary Johnson and his rival foreign secretary Hunt said that they would not accept the backstop element of Theresa May’s Brexit deal. Employment data showed average weekly earnings unexpectedly rising 3.4% but the labour market strength is widely attributed to employers hiring workers who they can later lay off if needed. Employment growth was the weakest increase since the three months to August last year making the matters worse for the pound as the labour market starts feeling the heat. Money markets are now pricing a 50% chance of a rate cut by the end of the year also following recent comments by Governor Mark Carney which were viewed as dovish.
The World Trade Organization’s appeals court, an important international institution which helps resolving disputes between member countries faces a temporary shutdown this year as a result of U.S. opposition to the nomination of judges. The EU’s trade chief said U.S. President Donald Trump has blocked new appointments to the seven-member body accusing judges of overstepping their mandates. Without the new appointments, the Geneva-based trade tribunal could be reduced to only one judge by Dec. 11, being as such unable to perform its tasks. In order to keep the process going forward, the EU has proposed using the WTO’s arbitration rules to set up a shadow version of the body but it is unclear how such a structure would work in practice.
The dollar held firm in the wake of robust U.S. retail data and a Brexit-driven dive in the wake of more earnings reports from American companies. Oil prices were also recovering on hints that U.S. tensions with Iran could be easing. Exports in Singapore sank by the most in six years in June led by a steep drop in electronics. There was little movement in shares with MSCI down 0.25%, Nikkei dropping 0.3% , South Korea 1%. Chinese blue chips edged up 0.3%. EUROSTOXX 50 futures dipped 0.2%, the Dow eased 0.09%, the S&P 500 lost 0.34% and the Nasdaq 0.43%. The dollar was a major beneficiary at 97.323 on a basket of currencies, having risen 0.5% overnight. The euro settled at $1.1214 after a loss of 0.4%, while the dollar held at 108.20 yen.
Former German defence secretary, Ursula von der Leyen received a narrow European parliamentary approval becoming the first female European Commission president on a platform of a greener, fairer and rule-based Europe. Chancellor Merkel’s long term ally was supported by socialist and liberal lawmakers as well as her fellow conservatives for a mandate to tackle issues such as climate change, trade and maintaining democracy in the European Union. She will be in charge of trade negotiations, economic and climate policy for 500 million Europeans and antitrust rulings involving especially powerful tech giants. Der Leyen also said she is open to giving more time to Britain to negotiate its exit from the bloc and promised to work “in a constructive way” with any new British prime minister.