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Mark O' Donnell
 · 
Research Analyst
October 1, 2020
 · 

Cable volatile on UK GDP results and Brexit

Cable volatile on UK GDP results and Brexit

The cable experienced wild swings as Brexit, and its economy weighed slammed traders and investors into a volatile session.

GBP/USD experiencing wild swings

GBP/USD fluctuated from the lower bound of 1.28 to the upper bound of 1.29 in a matter of hours as the market took in information regarding Brexit and the UK's GDP figures.

The Internal Market Bill passed by the UK government to override a specific part of the EU withdrawal agreement has come back to light. The European Union has now filed legal proceedings after the UK decided not to withdraw the Internal Market Bill, on the basis that the legislation breaches international law. This is after the deadline to withdraw the bill on Wednesday passed.

Cable swinging on Brexit woes

The UK government has admitted that it knew the law would breach international law in a "very specific and limited way." The UK intends to use this legislation as a game theory hedge if the UK and the EU go through a no-deal Brexit. The original Brexit negotiations had a deadline for the October 15th. However, fundamental differences in key Brexit points remain balanced, alongside the Internal Market Bill not being withdrawn, which may risk a default no-deal Brexit if the deadline is not extended.

Cable struggling on the weakness of the UK economy

Alongside further Brexit woes, official figures showed that the UK's GDP contracted 19.8% in the second quarter. A deep contraction, however, better than the market estimate of 20.4%. The Chief Economist at the Bank of England, Andy Haldane, mentioned that the "contagious pessimism" in the UK was weighing down the economic recovery. Furthermore, with the resurgence of the Coronavirus in the UK, forcing Prime Minister Boris Johnson to enact restrictions on citizens, Haldane expects unemployment to rise to around 7.5%. It is important to note that figure is on the lower bound of the central banks' estimate. It considers the government's new job support scheme, which splits the loss of wages evenly between the worker, employer, and government.

Expect more volatility, especially in the cable, as we approach elections and debates in the United States. Trade safe!

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