Brexit Issue, Weak Construction Data Keeps Pound Bearish

Brexit Issue, Weak Construction Data Keeps Pound Bearish
September 4, 2019


The pound declined yesterday against its key rivals, including the greenback, as the UK legislators who are against a no-deal Brexit are getting ready to block Brexit in the House of Commons. Furthermore, the negative impact of economic data is also dragging the pound downwards. Even though the pound has regained a portion of lost gains, it still remains weak and volatile. In the past 24 hours, the pound plunged to a three-year low of 1.1958 against the US dollar, from a high of 1.2174.

In the UK, opposition party MPs and pro-remain Conservatives intend to table a bill in order to block a no-deal Brexit as Parliament meets again after the summer break. The bill is expected to go for voting today. If the legislation goes through, then the government will be forced to postpone the Brexit date by three months, in case a deal is not reached with the EU before the October 31st deadline. To prevent such a scenario, Prime Minister Boris Johnson has decided to call for a general election on October 14th.

While the fear of a no-deal Brexit has pushed investors and speculators to unwind the pound holdings, economic data aggravated the selloff.

IHS Markit data stated that the UK construction sector contracted for the fourth successive month in August as businesses found it hard to obtain fresh work, which has decreased to its lowest level in more than ten years. That has led business optimism to drop to more than a decade low.

The IHS Markit/CIPS UK Construction Total Activity Index declined to 45 from 45.30 in July. Economists had anticipated a small increase to 45.90.

The report explained the reason for the poor performance of the UK construction sector: “August data pointed to a loss of momentum in the UK construction sector, led by the sharpest reduction in new work since March 2009.”

A reading below 50 implies contraction in the construction sector. Duncan Brock, a spokesman for the Chartered Institute of Procurement & Supply, stated that a reversal is not anticipated until 2020, even if the Brexit issue gets resolved amicably. “The reality is, if a revival of confidence and a flood of new orders return to the construction sector in the coming weeks, much like a large tanker turning in a dock, there is little room for the sector to improve in the last quarter of the year. It’s likely September’s data will be even more discouraging.”

In another economic data release, British Retail Consortium (BRC) has stated that annual total sales growth declined to zero in August, compared with 0.3% growth posted in July. Including those figures, the average rate of sales growth over the past one year has decreased to 0.4%, the lowest since BRC, which is an association of premium chains and supermarkets, started collecting data in 1995. BRC also revealed that like-for-like retail sales declined 0.5% y-o-y in August.

BRC Chief Executive Helen Dickinson said: “Greater economic and political uncertainty has driven down consumer demand. While the summer weather gave a small boost to food sales, this was canceled out by a drop in non-food sales.”

Paul Martin, UK Retail Partner at KPMG, opined that the retail market is struggling to maintain flat sales. Martin said: “August proved to be yet another incredibly disappointing month for retail, with like-for-like sales down 0.5% and total sales flat-lining at zero. It’s clear that for much of the retail market, efforts are being focussed on preservation, not growth, in this adverse and uncertain climate.”

The political uncertainty and poor economic data are anticipated to keep the pound weak in the short-term.

Technically, the GBP/USD pair has broken the support at 1.2180. The next major support is anticipated only near 1.1900. Additionally, the oscillator of the moving average is also having a negative reading. As a result, we can anticipate the GBP/USD pair to move down in the short-term.

GBP - technical analysis - 4th Sept 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Ian Maguire

Ian Maguire

Ian is our resident contributor to the latest going ons in the cryptomarket, keeping up to date with the latest icos and coins

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