The Pound has continued to drift lower as the same themes endure with cross-party Brexit talks failing and Theresa May’s leadership under threat.
Under growing pressure to quit, Mrs May met senior Tory politicians to discuss her future today. After overcoming a fairly recent vote of no confidence, current rules mean that she technically can’t be challenged until December. However, with growing Tory anger at May, it’s likely that if she doesn’t set a firm date soon then they’ll rewrite the rules and force a vote of no confidence on her to set up a leadership contest.
She’s stated that she won’t leave power until she has seen Brexit through. She wants to put her withdrawal agreement to a fourth vote in early June, but as there have been no major changes then it’s expected to be defeated yet again. At that point, it would seem nearly impossible for her to continue as PM.
The risk for the Pound (and what traders have been pricing in) is that it’s quite likely that without an election she will be replaced by a Euro-sceptic which makes a no-deal Brexit more likely again. The lack of a deal with Labour has increased the volatility index and hence why we’ve witnessed a bigger move. On top of this, we’ve seen increased risk aversion in the market as the US-China trade tensions have enflamed again; causing a movement out of riskier currencies such as Sterling.
As a result, the GBP/USD has given back close to 4-cents in the last 2-weeks and currently trades at a 3-mth low. It’s broken a few support levels and now trades close to a key technical area for traders. The GBP/EUR has lost close to 3% from the highs 2-weeks ago and now also trades at a 3-mth low.
With a lack of positive Brexit news, and remaining uncertainty over the future UK leadership (along with decreased risk appetite), there is little appetite for Sterling buyers at the moment with the trend still favouring the sellers. The Pound will start to look cheap fairly soon, however, but it will take some snippet of positive news for the current rot to stop.