Pound Plunges As Theresa May Postpones Brexit Deal Vote

Pound Plunges As Theresa May Postpones Brexit Deal Vote
December 11, 2018

 

The Sterling pound plunged yesterday against the US dollar following reports that the critical Brexit vote scheduled for today had been postponed by the Prime Minister. Earlier yesterday, the pound remained stable after the release of the October UK GDP estimate, which was in line with expectations. However, the trade deficit data reported later yesterday triggered the selloff. The GBP/USD currency pair dropped from an intraday high of 1.2760 to hit a low of 1.2570 in the early American session.

 

Mixed economic data and Brexit concerns pull down the pound

The cable opened this week with a gap down before rallying higher in the early Asian session. However, selling pressure forced the GBPUSD pair to move down in the early European session as markets looked for the release of the latest UK GDP data.

The Office for National Statistics reported that the UK GDP grew by 0.1% in October, up from 0% in the earlier month, even though both manufacturing and construction sectors had a hard time during the month. However, the GDP growth declined from 0.4% at the end of 2017.

Suren Thiru, head of economics at the British Chambers of Commerce, said: “The latest GDP data is further evidence that the drag effect of persistent Brexit uncertainty and the significant cost pressures faced by consumers and businesses is taking its toll on the UK economy.”

Recent private-sector business surveys have indicated that the economy is slowing due to uncertainty about the terms on which the UK will exit the EU. The polls forecast that the 4Q18 economic growth could be as weak as 0.1%.

However, the currency pair still declined as the trade deficit for October missed economists’ expectations by a large margin.  The UK’s goods trade deficit in October was more extensive than anticipated at £11.8bn, from an upwardly-revised -£10.68 billion in September. Economists had looked for a deficit of -£10.5 billion.

Yesterday’s data comes soon after the European Court of Justice ruled the UK can unilaterally abort its exit from the EU if the country’s political leaders conclude to do so. However, the UK Prime Minister, Theresa May, had other ideas. A media report indicates that the British PM had postponed tomorrow’s vote on the Brexit agreement, leading the pound to crash against the greenback.

Mrs. May is widely anticipated to be defeated, probably leaving the UK economy wrapped in uncertainty during the Christmas period. To avoid such a scenario, the British Prime Minister is making frenzied attempts by flying to Europe and meeting with leaders to obtain the necessary assurances and changes in the Brexit agreement, even though the EU officials have sternly said the deal could not be renegotiated.  She said she would discuss the issue with the EU leaders ahead of a conference in Brussels on Thursday and Friday, asking for “further reassurances” over the backstop.

The mixed economic data and Brexit related developments have thrown the UK into disarray, triggering a pound selloff.  Economists believe that the Brexit agenda will dominate the movement of the pound more than any other economic data.  Until the market sees a comfortable solution to the Brexit issue, the pound will remain weak.

Technically, the GBPUSD pair is moving along a descending channel as shown in the image below. The stochastic oscillator is in the bearish region. As a result, we can expect the currency pair to move down in the short-term.

GBP - technical analysis - 11th December 2018

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.

Janine

Janine

Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be


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