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GBP/USD Plummets to November Lows on UK Political Chaos

Last week’s high: $1.3053

Last week’s low: $1.2738

UK Politics and Brexit Uncertainties Limit GBP/USD Recovery Potential

Last week was hugely significant for Pound exchange rates. As the UK-EU’s Brexit deal draft was met with disapproval by much of the government, including some of Theresa May’s Cabinet, the Pound plummeted across the board.

Thursday was one of Sterling’s worst days in years – and the Pound to US Dollar exchange rate in particular shed over two cents on that day alone. Fears that Theresa May could face a leadership challenge also added to anxieties that the negotiated deal, which took over a year to reach, could fail and lead to a ‘no-deal Brexit’.

Still, the US Dollar was unable to fully capitalise on the Pound’s weakness throughout the week. This also made it easier for the Pound to recover some of its losses on Friday.

Demand for the safe haven US Dollar was dampened amid signs that the US and China were looking for more positive trade negotiations.

US data was generally solid throughout the week, but as it had little impact on the already strong economic outlook it didn’t do much to help the US Dollar hold its best levels.

USD Outlook: UK Politics and US Housing Data in Focus

As next week’s UK economic calendar will be relatively quiet, it’s perhaps appropriate that market focus will be squarely on UK political developments and Brexit jitters.

If Theresa May is faced with a leadership challenge, the Pound’s volatility will only worsen. While analysts expect May will survive a potential challenge, it could still delay the UK-EU Brexit bill and worsen fears that the UK could be headed for a ‘no-deal Brexit’.

In the event that May is defeated the Pound could be in for much sharper losses.

Essentially, the Pound’s strength and volatility will be influential enough to drive GBP/USD next week, and it will depend on how UK political developments impact the likelihood of a ‘no-deal Brexit’.

The US Dollar may react to upcoming notable US housing figures and durable goods orders, but shifts in risk-sentiment and UK political news is much more likely to drive the Pound to US Dollar (GBP/USD) exchange rate next week.

Key Events

19th November

15:00 US NAHB Housing Market Index

20th November

11:00 UK CBI Industrial Trends Orders

13:30 US Building Permits

13:30 US Housing Starts

21st November

09:30 UK Public Sector Net Borrowing

13:30 US Jobless Claims

13:30 US Durable Goods Orders

15:00 US Existing Home Sales

23rd November

11:00 UK CBI Distributive Trades

14:45 US Markit PMI Projections

 

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Arron Morris
Senior Currency Broker
T: 01442 892 065

 

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