Pound plunges as UK PM plans to suspend parliament before Brexit

The pound tumbled to its lowest in nearly a week on Wednesday and government bond yields fell after Prime Minister Boris Johnson moved to suspend parliament in September, leaving lawmakers little time to head off a no-deal Brexit.

Johnson said on Wednesday he would schedule a Queen's Speech for Oct. 14 to launch new legislation. He denied he was seeking to prevent parliament from obstructing his Brexit plans, Reuters reports.

However, the move would curtail the time available to lawmakers who want to prevent him from taking the country out of the European Union without an exit agreement.

The announcement took the edge off a pound rally on Tuesday, when it touched a one-month high on news opposition parties were thrashing out ways to block a hard Brexit.

"For the pound to recover the fall this morning, anti-no- deal MPs will have to get their acts together in the first weeks of September," Jordan Rochester, a strategist at Nomura said, raising the odds of a no-deal Brexit to 44% vs 40% earlier.

Sterling dropped to a six-day low of $1.2156 and was trading 0.6% lower by 1100 GMT. It weakened to 91.265 pence against the euro, its lowest in nearly a week.

Brexit-sensitive easyJet and International Airlines Group , the owner of British Airways, slumped 2% to 4%. Housebuilders such as Persimmon and Taylor Wimpey were down 2%. The internationally oriented FTSE 100 index, however, was buoyed by sterling's weakness.

As investors flocked into safer assets, British 10-year Gilts rose, pushing yields to their lowest in more than a week. Yields move inversely to bond prices.

$7 Bln Of Shorts

Sterling's decline may have been tempered by bearish views on the British currency - speculators had outstanding short sterling positions of some $7.028 billion as of Aug. 20, data from the Commodity Futures Trading Commission showed. That's close to the levels held two and a half years ago.

It also remains unclear whether the queen will follow Johnson's request, sending parliament into recess for five weeks instead of the usual three. Parliament returns from summer recess on Sept. 3, and another recess was expected between roughly Sept. 13 and Oct. 8.

"Many people don’t believe this could happen," said Jane Foley, senior forex strategist at Rabobank. "It's not a foregone conclusion that he (Johnson) will do that."

But given Johnson's apparent determination to take Britain out of the EU on Oct. 31, with or without a deal, derivatives markets indicate sterling is more likely to fall than rise in coming months.

Implied sterling-dollar volatility, a gauge of expected price swings, has surged to the highest since January, contrasting with other developed-market currencies, where volatility remains subdued.

The pound has lost 4.3% of its value against the dollar this year, but most investors are wary of buying it back just yet.

"Sterling is cheap, so we're primed to increase our sterling exposure, but we won't do that until we get some clarity on a no deal or deal," said Rory McPherson, investment director at Psigma Investment Management.

Bloomberg Update- 

Corbyn: ‘Will Do Everything We Can’ to Block Govt

Jeremy Corbyn, leader of the main opposition Labour Party, said he and lawmakers opposed to a no-deal Brexit will do everything they can to prevent Prime Minister Boris Johnson from suspending Parliament, laying out his strategy for when MPs return from summer recess next week.

In a pooled TV clip, Corbyn said his first priority would be to find a way to use legislation to block the government from taking the U.K. out of the EU without a deal and to seek a Brexit extension. After that, the opposition leader said he would seek a confidence vote in the government “at some point.”

“What the prime minister is doing is a sort of smash and grab on our democracy in order to force through a no-deal exit from the European Union,” he said, adding that the majority in Parliament was against that scenario.

Petition to Stop Suspension Soars 

An online petition to stop the government suspending Parliament has received more than 125,000 signatures, passing the threshold for it to be considered for debate in Parliament -- though it’s not clear how much weight it will carry given the government’s plans.

The petition demands: “Parliament must not be prorogued or dissolved unless and until the Article 50 period has been sufficiently extended or the U.K.’s intention to withdraw from the EU has been canceled.”

MPs Ask Court to Block Parliament Suspension 

A cross-party group of MPs and peers filed a motion asking the Court of Session in Edinburgh to block Boris Johnson’s suspension of Parliament.

“Legal action to prevent the prime minister suspending Parliament has already been fast-tracked through the courts and we are now seeking an emergency hearing to prevent this undemocratic action,” Labour MP Ian Murray said in an emailed statement from the group.

The motion was filed by attorney Jolyon Maugham, who spearheaded a landmark case that led the EU’s top court to rule that Britain can reverse the Brexit case if it chooses. According to Sam Fowles, an attorney at Cornerstone Barristers who is working with Maugham on the case, suspending Parliament “arguably” goes against legislation demanding Parliament scrutinize any agreement between the U.K. and EU -- even if that deal was limited in scope.

Even an agreement to keep planes flying “would arguably be an agreement Parliament would have to scrutinize, and Parliament can’t do that if it’s prorogued,” he said in an interview.

Bercow: Suspension Is ‘Constitutional Outrage’

Speaker of the House of Commons John Bercow, who has previously said he would fight any attempt to suspend Parliament, called the government’s move a “constitutional outrage” in a statement cited by the Press Association.

“However it is dressed up, it is blindingly obvious that the purpose of prorogation now would be to stop Parliament debating Brexit and performing its duty in shaping a course for the country,” Bercow said, according to the PA. “At this time, it is vital that our elected Parliament has its say. After all, we live in a parliamentary democracy.”