Sterling Vulnerable On No-Deal And Recession Risks

Political risks everywhere

Europe is enjoying an early bounce at the start of the week as investors focus on political developments around the globe in the absence of much on the economic front.

This is typically quite a quiet period for the markets but the volatile political situation in various countries is ensuring that's very much not the case. Italy is the latest to come back to the forefront of our attention, as Matteo Salvini threatens to bring down the coalition government that has little more than it's opposition to the EU in common.

Anyone thought that this would be enough to provide any stability in Italy was kidding themselves and it's actually impressive it's lasted this long. The timing is interesting given that lawmakers are on holiday but there's rarely anything conventional about populist politics so again, why be surprised. Perhaps he's afraid of missing out on his opportunity to capitalize on League's surge in the polls after the EU elections.

Sterling vulnerable on no-deal risks and a possible recession

This may not be the time for much of substance to be being achieved on the Brexit front, for obvious reasons, but that's not stopping the pound going on a wild ride as we're frequently reminded just how serious Boris and his team are about no-deal. I can't imagine much will change here in the coming weeks as the new PM desperately seeks to avoid the mistakes of his predecessor and ensure the EU believes him when he says no deal is better than a bad one.

Unfortunately for him, the EU is showing no signs of backing down on this and time is fast running out which doesn't bode well for the pound as it eyes up 1.20 against the dollar. The UK data this week, of which there's plenty, may provide some distraction, particularly in light of last week's GDP reading which put the country at risk of recession just before the deadline.

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