GBP/USD climbed to 4-week highs just above 1.2300 on Tuesday before a limited correction back to the 1.2285 area while EUR/GBP dipped to lows near 0.9020.
Opposition parliamentary leaders held talks to discuss a strategy in order to block any government attempt to leave the EU without a deal.
The political stakes were increased again in Europe on Wednesday following reports that the government will look to suspend or prorogue parliament from around September 10th. Although parliament is usually suspended just before a Queen's Speech, it is very unusual to suspend parliament for that long. This move is assumed to be specifically designed to block parliament.
If parliament is suspended, MPs would not have time to approve the legislation to block a 'no-deal' outcome.
Under this scenario, the Queen's speech will be held on October 14th before the crucial EU Summit due to be held on October 17th.
If this move is confirmed, there will be a huge political row with severe political tensions. It is possible that resignations from the government will take place. Meanwhile, there is speculation that the opposition in the UK will trigger a vote of no-confidence in the government next week.
The sterling declined sharply following the reports with GBP/USD dipping to below 1.2200 with EUR/GBP strengthening to 0.9100.
It is guaranteed that sterling volatility will intensify in the short term with very choppy trading today and throughout the next few weeks. Given higher volatility, strong risk management on the sterling positions is essential.
If the government backs away from suspending parliament or there is strong evidence that a no-confidence vote will be won, the pound sterling will develop a rapid rally. Suspension would also increase pressure on the EU to make concessions.
