Sterling has just dipped after official data showed that Britain’s economy shrank in the second quarter of this year.
The growth data (GDP) came in worse than expected at -0.2% versus forecasts for a flat reading. This data increases fears that the UK could be heading towards a technical recession, which is defined as two consecutive quarters of economic decline. The impact and uncertainty over Brexit has contributed a lot to this but there’s also a global slowdown in growth which is mainly attributed to the ongoing trade war between China and the US.
Since Boris Johnson’s election, the Pound has slid as fears of a no-deal Brexit increased causing traders to re-calibrate their positioning. It’s descent has been limited in the past week, however, as traders pause for breath and technical support levels provide some reprieve for the battered Pound. Furthermore, the UK government remain in summer recess until the start of September, so the market awaits any fresh Brexit developments.
It’s likely that Boris Johnson’s government will face a vote of no confidence when the House returns on the 3rd September. With a majority of only one MP, and many Tory MPs still angry at Johnson’s Brexit approach, there is some chance of him losing this. There are concerns, however, that even if Mr Johnson were to lose this vote of confidence, that he may still be able to force a no-deal through before any general election is held (as this is the default legal position). Watch this space as lawmakers continue to look for ways to block a disorderly Brexit.
As a result, the GBP/USD is back towards the bottom of its range and testing near-term support (around lowest levels since Jan 2017). The GBP/EUR has pushed close to a 2-year low having lost around half a cent this morning. Pound crosses have not moved that much over the past week and might continue to be relatively subdued in the short term. However, as we get closer to September there’s likely to be a renewed focus on Brexit as we get closer to crunch time (again!)