UK House of Commons voting triggered Sterling volatility.

Political developments tended to dominate markets during Tuesday with little impact from economic data.

The US dollar recovered some ground as European political reservations increased again and EUR/USD retreated as German yields also declined.

UK House of Commons voting triggered Sterling volatility with significant net losses as the Brexit Bill was put on hold after the government’s timetable to meet the October 31st deadline was rejected.

Equities generally lost ground amid the more cautious global risk tone with US political reservations undermining USD/JPY support.

Commodity currencies also lost ground as investors turned more cautious and the dollar recovered. Oil prices were supported by reports that OPEC could consider deeper production cuts. Demand for precious metals increased slightly amid increased political uncertainty.

The dollar overall made headway, although the recovery primarily reflected fresh doubts over other major currencies. EUR/USD failed to make further headway and retreated to below 1.1150 at the European close. Brexit concerns increased again after UK parliamentary votes and EUR/USD drifted lower to the 1.1120 area as a retreat in commodity currencies also helped underpin the US currency with little change on Wednesday.

The September government borrowing requirement increased to £9.4bn for September from £8.8bn the previous year and the first annual September increase for five years. The CBI industrial orders index declined to -37 for October from -28 previously with companies remaining pessimistic over the outlook as political uncertainty continued to undermine sentiment.

Sterling retreated during the European session with fresh concerns that parliament would block rapid approval of the Brexit legislation. These fears increased after the government warned that it would not push ahead with the legislation if the timetable was rejected and push for a General Election instead.

The government won a House of Commons vote on the Brexit Bill second reading, but lost the timetable motion and then suspended parliamentary debate to await a response from the EU. If the EU offers a short extension, the Bill is likely to return while a 3-month extension would potentially lead to an election. After touching 1.3000 after the first vote, GBP/USD dipped sharply to below 1.2900 while GBP/EUR weakened to around 1.1550.

Elevated uncertainty continued to undermine Sterling with a GBP/USD retreat to near 1.2850 on Wednesday before a slight recovery with GBP/EUR just below 1.1550.

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