Pound hits five-week high as no-deal Brexit fears ebb - as it happened

Time for a recap

• The pound has surged to a five-week high, as investors grab onto hope that a no-deal Brexit can be avoided.
  
  Sterling hit $1.235 for the first time since late July, as MPs pressed on with efforts to block a No Deal.
  
  
• City investors predicted the pound would keep rallying if the UK was given another Brexit extension, hitting $1.30 or even $1.35
  
  
• Germany’s economy has hit fresh problems, with factory orders tumbling in July. Economists say the data show Europe’s largest economy is still struggling.
  
  
• Stock markets around the world have jumped, after America and China agreed to hold fresh trade talks next month. Investors, though, advise caution.

Andrew Gwynne MP has summed up Boris Johnson’s week -- with a list of events that have generally pushed the pound higher.

Ouch! Growth across America’s service sector companies has slowed to a three-year low.

Data firm Markit says there was “a loss of momentum across the U.S service sector” last month,” with new orders slowing and demand from overseas falling.

This dragged its services PMI down to 50.7, showing the slowest expansion in business activity since March 2016.

Chris Williamson, Chief Business Economist at IHS Markit, has the slump in US factories is now spreading across the economy.

“US businesses reported one of the toughest months since the global financial crisis in August, with growth of output, order books and hiring all slowing amid steep falls in both export and business confidence.

“Only on two occasions since the global financial crisis have the US PMI surveys recorded a weaker monthly expansion, and these were months in which business was hit by the government shutdown and bad weather in 2013 and 2016 respectively. This time, trade wars and falling exports appear to be the main drivers of weakness, exacerbating fears of a broader economic slowdown both at home and globally.

The strength of the pound has dragged down the London stock market today.

The FTSE 100 has lost 50 points, or 0.7%, to 7261. A stronger sterling hits the value of multinational companies with large earnings in foreign currencies.

This chart from IG shows how the pound is likely to rally if a no-deal Brexit is averted, pushing the Footsie lower.

Rabobank analyst Jane Foley says the pound acting like a “tidy barometer” for the odds of a no-deal Brexit.

She told AFP:

“Just as fears of a no-deal Brexit pushed the pound below $1.20 earlier this week, expectations that MPs will succeed in delaying Brexit beyond October 31 have resulting in a relief rally back to $1.23.

“The pound is clearly not out of the woods with political uncertainty still at very elevated levels - but the risk of a disorderly Brexit next month at least looks set to be pushed off the table.”

Just in: America’s companies created more jobs than expected last month - a good sign for the global economy.

The private sector payroll rose by 195,000 last month, stronger than the 140,000 which Wall Street expected.

That suggests US companies aren’t being dragged down by issues such as the trade war.

Sterling’s travails isn’t doing much for the Conservative Party’s reputation for economic competence.

John Gapper of the FT speculates that a Tory win at the next election could trigger a sterling crisis (as it would allow them to drive through a no-deal Brexit).

Some City experts are warning that the pound’s recovery may not last.

Dutch bank ING says:

“A UK election now looks inevitable - the only question now is ‘when’. However, the chances of a ‘no deal’ Brexit on 31 October appear to have receded, but there are still ways it could happen, and given the outcome of an election looks deeply uncertain, despite the Conservatives’ lead in the polls, the rebound in sterling is unlikely to have legs.”

John Hardy of Saxo Bank also warns that No Deal is still a significant possibility, depending how an election played out.

Sterling continued its strong recovery into today as the immediate threat of a No Deal Brexit has been removed by the latest parliamentary maneuvers, as parliament will likely get its delay to avoid an October 31 No Deal (key question: what will the EU terms be for that delay?) and Boris Johnson’s attempt to call for snap elections in mid-October was defeated.

There are still too many scenarios from here to signal the all clear – an election scenario that serves as a referendum on Brexit still presents the risk of an eventual No Deal.