The Sterling pound dropped against the greenback on Friday to fresh 4-month lows as cross-party Brexit talks crashed ahead of the imminent departure of Theresa May. The Labor Party abandoned the discussions formally stating there is no necessity to discuss with a government that is on the verge of breaking down. From an initial high of 1.2798, the GBP/USD pair dropped to a fresh 4-month low of 1.2710 on Friday.
After the breakdown of cross-party negotiations, the GBP/USD pair traded sideways for most of the Asian session on Friday before moving down in the early London meeting. Expectations that cross-party discussions could steer a route through the Brexit impasse were crushed as Labor president Jeremy Corby stated that these discussions had advanced as much as possible and would now cease without a consensus.
The talks, which started in March after the European Union (EU) decided to postpone the Brexit date to 31st October, were broadly interpreted as an opportunity for Prime Minister Theresa May to convince the legislators to approve her transition deal. The collapse of the discussions will aggravate worries that Britain might yet again move towards the cusp of a Brexit cliff.
Investor worries are aggravated since Ms. May has begun the process of her exit from the Prime Ministerial position after the second session of the Withdrawal Agreement Bill. The Prime Minister has stated that she would quit irrespective of the results.
In a message to the Prime Minister, Corbyn has opined that while discussions had been comprehensive, meaningful, and reflected a great deal of commitment on both parties, important policy differences continued in the face of the Conservative party’s inability to compromise on specific key demands made by Labor, especially regarding inclusion of the Customs Union and ensuring that Britain’s economic and employee safety norms would stay at European level. He also mentioned worries that the successor may not fulfill Ms. May’s commitments.
During a party rally on Friday, May said: “There isn’t a common position in Labour about whether they want to deliver Brexit or hold a second referendum, which could reverse it.”
With the cross-party talks drawing to a close without an agreement reached, it is even more unlikely that the Bill will be approved in its second reading in June. This makes it probable that Ms. May will have to specify her departure date soon.
Because of Labor’s resistance to the present Brexit agreement, investors are concerned about a no-deal Brexit scenario. Markets are also worried about the potential president of the Conservative Party as Boris Johnson came aboard with the plethora of applicants who are lobbying to substitute Theresa May.
Trade news also affected the chances of cable’s recovery as China toed a hard-line position against the US. Last week, Mnuchin said that he would most probably go to China shortly for the next round of discussions, but the Chinese government press has since moved offensively, stating Beijing is willing to stop trade discussions if Washington continues its hard intervention.
Last week, disputes between the two nations intensified, with the US and China slapping new import duties on each other’s products and China canceling orders for American pork.
Amid a deteriorating trade conflict with Beijing that causes financial distress on both ends, Trump ratcheted up a clampdown on Chinese telecommunications multinational Huawei. Jia Qingguo, lecturer of global affairs at Peking University, insisted that Mnuchin’s trip would only be feasible if the US were willing to be rational.
Regarding the US-China trade talks, Jia said: “The stand-off should last for a while because the US has refused to make even the slightest compromise – to a point that is somewhat unreasonable. It is unreasonable for the US to insist on high tariffs when reaching an agreement. Another thing is the US’ approach towards Huawei and hi-tech issues, which has been about resistance rather than reaching a fair deal.”
In the past few years, the bipartisan agreement has swayed sharply against Beijing, with some Washington-based lawmakers of the opposition party even requesting Trump to adopt a harsher stance
Commenting on the unified voice of the US legislators against China, Patrick Lozada, China director at the Washington-based strategic advisory firm Albright Stonebridge Group (ASG), said: “There is a broad hawkishness on China that straddles left, right and center. The problem with this consensus is that in the absence of a credible counter-argument, the actual facts on the ground can sometimes be lost as people compete to see who can be more hawkish.”
Also, the risk-off feeling strengthened the greenback as measured by the US Dollar Index, which reached a high of 97.95.
The historical price chart indicates that the GBP/USD pair continues to move within a descending channel, as shown in the image below. The oscillator of the moving average has a negative reading. As a result, we can anticipate the currency pair to remain in a downward trend in the days ahead.
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