Pound-Dollar Rate On Sale in the City as Westminster Politics and Charts Point Lower

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- GBP tipped for losses by TD Securities, citing Brexit politics.

- Gov expected to seek 'no deal' mandate from voters in election.

- Market seen pricing-in 'no deal' Brexit risk again, after Sept rally.

- Commerzbank says charts show GBP "topped out" around 1.25.

- Technical signals flag renewed move lower, Commerzbank sells. 

- BMO abandons attempts at assigning odds to Brexit scenarios.

The Pound-to-Dollar rate extended its nascent run off losses Friday but is tipped for further declines ahead by analysts at TD Securities and Commerzbank, who say Brexit politics and technical signals coming from the charts will weigh on the British currency up ahead. 

Sterling ceded ground to a stronger Dollar as investor unease over the prospect of a 'no deal' Brexit reared itself again in the markets just as MPs returned to their seats in the House of Commons following the Supreme Court declaration that Prime Minister Boris Johnson's suspension of parliament was unlawful.

No deal fears were surfacing again not only because Westminster was back in action once more, but also because Prime Minister Johnson stuck to his familiar refrain on Wednesday night that the UK will leave the EU with or without formal arrangements on October 31. The stance has encouraged speculation that Johnson might have a plan for circumventing the so-called Benn Bill passed  in parliament by the opposition, with the help of 21 now-former Conservative MPs and an apparently partisan Speaker.

"We think the latest string of stinging rebukes to the government will only increase their resolve to pursue an explicit No Deal mandate from voters. With a notable lead in the polls, we think markets will quickly start to price in renewed concerns of an abrupt departure with increased vigor. Indeed, some of the most recent indicators suggest a Conservative/Brexit party combination could approach a majority in the House," says Ned Rumpeltin, European head of FX strategy at TD Securities. "We see ample scope for these declines to accelerate, with an eye on our initial target at 1.2270."

Above: Pound-to-Dollar rate shown at 4-hour intervals.

The threat of a 'no deal' Brexit had been diminishing throughout much of September, as MPs from the opposition and governing Conservative Party, aided by the House of Commons Speaker, took control of the parliamentary agenda and imposed legislation upon the government. Parliament's bill requires Johnson to seek a third Brexit delay if the EU withdrawal agreement hasn't been approved by October 19, but the PM says he won't do it and also claims he has no intention of breaking the law.

Statements from some EU officials, not to mention leaked details of proposals concerning the Irish border that were reportedly made by the UK government to the EU, had egged on the rally too. However, and as much as the September upswing by the Pound had previously led to much speculation about the prospect of even further gains, market sentiment is again turning against the British currency. Commerzbank told institutional clients on Thursday to sell the Pound-to-Dollar rate.

"GBP/USD has started to see a deeper sell-off from the mid-July high at 1.2580 and we suspect has in fact topped at 1.2582. Minor support is found at the 55 day moving average and the September 12 low at 1.2291/1.2283. Further minor support sits between the early and midAugust lows at 1.2080/15 and major support lies at the 1.1958 current September low. A slip through the 1.1958 recent low would put the 1.1491 October 2016 low (according to CQG) on the cards," warns Karen Jones, head of technical analysis at Commerzbank. 

Jones, who studies trends and momentum on the charts rather than statements in parliament, has recommended that selling around 1.2415 and riding a continued move lower over the coming days and weeks. Last week the bank was a buyer of the exchange rate, although that was when the market looked to be entering a durable upswing that Jones says now looks to be over. 

Sterling's fortune in the short-term will be determined entirely by perceptions of the odds of a 'no deal' Brexit, which analysts have long said would send the Pound-Dollar rate down below 1.15 and potentially as far as 1.05. However, some in the City have given up attempting to assign odds and probabilities to the various different Brexit scenarios for the time being, in part because of the unprecedented nature of some of the actions undertaken by MPs. 

Above: Pound-to-Dollar rate shown at weekly intervals.

"We've resigned ourselves to no longer being able to predict Brexit; it would be a waste of time to keep assigning probabilities to various Brexit-related outcomes," says Stephen Gallo, European head of FX strategy at BMO Capital Markets. "If the rules are being changed day-to-day, there are few ways to predict what tomorrow will bring. That's tough enough to surmount. But adding potential Brexit outcomes into the mix would simply overcomplicate things, so we're tossing them out for the time being."

The Speaker of the House of Commons, Conservative Party MP John Bercow,  has used a "creative interpretation" of the constitutional rulebook in repeated and seemingly apparent attempts to frustrate the government's Brexit plan. But the constitutional rulebook is simply one of established conventions rather than a written document, and so is particularly easy as well as vulnerable to change. 

One of those conventions is that the government of the day controls the business of parliament, which has typically meant the opposition is only able to get its business dealt with in certain pre-agreed circumstances. However, the Speaker has repeatedly handed control of the agenda to a group of MPs whose only common denominator is regret over the outcome of the referendum and either a stated or apparent desire to prevent an exit from the EU.

That's how the so-called Benn Bill came to secure a majority in the House of Commons. The Speaker claims he was right to enable MPs to take control of the agenda and clerks from the House of Commons have outlined the relevant considerations here, but the constitutional shenanigans didn't end in parliament. The Supreme Court also made a controversial ruling this week that the Prime Minister says related to a political question that judges were "wrong" to take up. 

"Brexit is becoming less of a bilateral issue and more of a domestic constitutional one for Britain," Gallo says. "We think the implications of what is taking place now are huge. It seems to us that constitutional norms are being re-written purely on the basis of "thwarting Brexit" without a proper debate on the long-term implications of these changes first. This means that a big chunk of any future government's manifesto will have to focus on constitutional reform."

Above: Pound-to-Dollar rate shown at weekly intervals.

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