Theresa May to step down on 7th June

Theresa May is to step down as leader of the conservative party on the 7th June but will remain caretaker PM whilst a leadership contest decides who will take over her role.

Her resignation has been widely anticipated in the markets as she’s come under extreme pressure over recent days and weeks over her handling of Brexit. We’ve seen the Pound gain a little on overdue expectations but the reality is that this doesn’t really change anything regarding Brexit and even with a new leader the impasse still remains for the near future.

Sterling will likely take direction from expectations of who will take over as PM. The current favourite is Boris Johnson – a fervent Brexiteer – and if this sustains, then the Pound may remain under pressure as a no-deal scenario becomes a more likely option. There will be a host of names thrown into the hat and the most likely options are all Brexiteers (although some are more diplomatic in their approach preferring a deal over no-deal).

Either way, it seems that the whole Brexit saga is likely to continue for a lot longer and many banks have increased their odds of the 31st October deadline being extended further.

The GBP/USD currently trades a cent higher from yesterday’s low and the GBP/EUR has only gained a smidge.

May offers MPs a vote on second referendum if they vote for her deal

The Pound has made back a bit of ground after Theresa May announced further details on her “new Brexit deal”.

The vote on the deal – likely to be the in first week of June –  will be her fourth (and likely last) attempt at getting her withdrawal agreement through Parliament. In an impassioned speech, she’s given further guarantees and made further concessions to try and win over some extra votes.

There were new guarantees on workers’ rights, environmental protections, the Irish backstop, and also a bit of compromise on the customs union (a temporary one). The standout change to the bill, however, was that she’s promised MPs will get a vote on whether there should be a second referendum should they vote her deal through.  

This is clearly May’s last chance to salvage something from her tenure as Prime Minister, but, as things stand, it doesn’t appear this will be enough to swing enough votes over but we shall see how things pan out over the next 2-weeks. Her deal would have likely been voted through if she’d added a confirmatory vote onto it instead, rather than just a vote on whether to have a second referendum which is really a watered down version. Previously, this vote has failed in parliament, so it will be more a gamble for the more staunch Remainers (appealing for a second public vote) to vote for this deal.

As a result, the Pound strengthened around half a percent but remains at subdued levels (4-mth lows) as the political uncertainty and fear of a Euro-sceptic Boris Johnson taking power continues to weigh on Sterling

Pound continues slide as key themes linger on

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.

Pound edges lower as cross-party Brexit talks struggle and PM under pressure

The pound has edged lower this week as cross-party talks between Labour and the Conservatives appear to be collapsing and Theresa May is under pressure to set a date for her resignation as PM.

Poor results for the two main UK parties in last week’s local elections had temporarily boosted the pound as some analysts predicted that there would be a fresh impetus for them to work out an agreement on Brexit. Comments over the weekend and in the past few days indicate, however, that this is not the case and that we’re likely to go back to square one regarding Brexit and take part in the upcoming European elections.

Further uncertainty is mounting over Theresa May’s position as PM and we are likely to find out soon when she’ll be expected to give notice of her departure and therefore when a leadership contest will occur.

As a result, both the GBP/EUR and GBP/USD are both down by around 1% from Friday afternoon’s high. However, they both remain at fairly buoyant levels and trapped within the recent ranges. Brexit and political developments remain the key focus for Sterling traders. The downside from the political uncertainty is being counterbalanced by increased odds of a no Brexit scenario from a second referendum (and the reduction of no-deal odds).

The volatility index has been low since before Easter and things remain relatively subdued for now. We will let you know of any significant developments though.