A few weeks ago today’s headlines would have seemed almost impossible. The GBP USD exchange rate even managed to recover quickly after YouGov’s new polling model predicted a hung parliament. Even on the 7th, Sterling was able to edge higher on the expectation Theresa May would return to Parliament with an even stronger majority, or even the biggest landslide victory in recent Tory history.
So today’s headlines have unsurprisingly kept the Pound tumbling:
- ‘Hung parliament confirmed after Labour’s shock gains’ (Independent)
- ‘Theresa May heading to Buckingham Palace at 12.30pm to form a minority government’ (Telegraph)
- ‘May strikes deal with DUP to form government’ (Guardian)
GBP USD has partially recovered after slumping to 1.26 – its lowest level since the 17th of April this year.
In terms of today’s trading session, Sterling is technically edging higher versus the US Dollar, but this is only after slumping -2.5% overnight.
The bulk of losses were recorded immediately after the release of the exit poll, which predicted, with startling accuracy, that the Conservatives were set to lose seats and their majority in Parliament.
Theresa May has since struck a deal with the Democratic Unionist Party (DUP) to give her the support she needs to hold onto power, despite growing pressure from her own party and the opposition to resign.
GBP USD Exchange Rate Forecast; Further Depreciation for Sterling Seems Likely
The testimonial of James Comey, former FBI Director, yesterday proved a bit of a washout from the point of view of the markets.
Comey largely said what everyone had expected him to and, while Democrat Senators are sure to jump on some of his comments as evidence Trump should be impeached, the actual political damage to the President from his testimony is unlikely to be severe.
This keeps hopes high that Trump will indeed be able to implement the huge reforms to tax and increase spending by US$1 trillion as promised on the election campaign.
This, combined with odds of 95.8% that the Federal Reserve will hike interest rates to 1.25% on Wednesday, keeps the outlook for the US Dollar positive.
Meanwhile, the Pound faces the prospect of heading into Brexit negotiations with an unstable government holding a weaker mandate and the potential for significant interference from the opposition in Parliament.
Even if the latest US non-farm payrolls report has softened the odds that the Fed will deliver as much monetary tightening during the remainder of this year as markets had once expected, GBP is facing two years of Brexit negotiations and uncertainty is likely to be higher than ever going forward.
GBP USD has appreciated around eight cents since striking its post-referendum low during the October ‘flash crash’.
While this means it is unlikely to return to 1.19, the Pound does have plenty of room to the downside.
Comments are closed.