Pound slumps to 4-month low as Brexit talks set to end

Summary:

  • GBPUSD falls to lowest level since January

  • Political concerns weigh on the pound

  • Brexit talks set to end; Hardliner to replace May?

 

At the end of what has been a bad week for the pound, reports that Labour has called off cross-party Brexit talks will do little to help the currency’s plight as the GBP/USD rate has fallen to its lowest level since mid-January. After a strong move higher at the start of the month the GBP/USD is on track to post a 9th loss in the past 10 trading days as political concerns weigh on the pound. Part of the drop in the pair can be attributed to strength in the buck, but there has been a clear move lower for sterling with all the major currencies appreciating versus the pound in the past week. After three consecutive weekly losses it’s been a better week this time out for UK stocks, with the FTSE moving higher and looking to post a weekly gain in excess of 100 points.

 

Downside risks to the pound overstated?

The cross-party talks themselves always had the feel of a charade that was unlikely to provide a breakthrough about them, with both sides keen to appear that they were working on a breakthrough but the fear of giving their main rivals a helping hand in times of trouble meaning that ultimately any tangible progress was unlikely. At the same time, Theresa May is expected to set out the timeline for her departure in early June after yet another attempt to get the Withdrawal Agreement through parliament that is likely once more to come up short.

 

Her replacement is likely to take a more hardline approach on Brexit, with Boris Johnson throwing his hat into the ring on Thursday and the early favourite amongst bookmakers. Having said that, even after these events there’s not really too much fundamentally that has turned more negative for the pound and given the current parliamentary make-up the chances of a no-deal still seem remote which means the downside should be limited.     

GBPUSD has dropped below 1.2755 to trade at a 4-month low. With the RSI below 20 on H4 the market is entering into the extremely oversold region. Source: xStation

 

 

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