Pound Strengthens On Rumors of Theresa May’s Resignation

Pound Strengthens On Rumors of Theresa May’s Resignation
May 13, 2019

 

The British pound moved sideways against the greenback on Friday, despite the announcement of strong UK GDP data in the early London session and multiple upbeat economic data. That was the second consecutive session in which the GBP/USD currency pair kept trading in a tight range. The GBP/USD currency pair traded in a narrow range bound by a low of 1.2990 and a high of 1.3048.

The GBP/USD pair opened Friday’s session with a bullish sentiment as investors welcomed the probability of ousting Theresa May. Demands for the Prime Minister to establish a timeline of departure have increased within the Conservative Party as possible alternatives appear. The pair rose from their daily lows after the Office for National Statistics published optimistic UK Q1 GDP data. GDP rose by 0.5% in the first quarter, reflecting an annualized figure of 1.8%. Both figures met economists’ expectations. March’s upbeat UK manufacturing and industrial production figures also led to the pair’s uptrend. The robust UK trade balance data for March was also a significant reason for the subdued rally.

In the meantime, the greenback had become weak as import duty on Chinese goods became effective. With inflation figures meeting analysts’ anticipations, investors were centered more on setback in US-China trade discussions, which could last throughout summer and spark a market selloff. The US raised import duties on $200 billion worth Chinese products from 10% to 25% after trade delegates accused Beijing of backing down on several sections of the working trade deal structure. The higher duties do not extend to Chinese goods that left the ports before Friday. By ocean, the transit of goods across the Pacific takes about three weeks, which experts think to be sufficient enough before importers have to bear additional duty on merchandise. Whereas, President Donald Trump feels there’s “no need to hurry” to finish a trade agreement, pointing out that tariffs have created incredible profits for the US.

Trump tweeted as follows: “The US only sells China approximately 100 Billion Dollars of goods & products, a very big imbalance. With the over 100 Billion Dollars in Tariffs that we take in, we will buy agricultural products from our Great Farmers, in larger amounts than China ever did, and ship it to poor & starving countries in the form of humanitarian assistance.”

Also, Trump urges producers to move their manufacturing and related activities to the US to prevent tariffs. But China cautioned it is “completely prepared for an escalated trade conflict,” adding it is all set to fight back with corrective steps. As of now, there is no concrete info regarding the retaliatory steps, but it certainly destabilizes agreements between the US and Chinese trade dignitaries, which began another round of discussions last Friday. Notably, the US posted a $50bn trade deficit in March, an increase from February’s $49.3bn.

On the economic data front, the Bureau of Labor Statistics (BLS) revealed that the April inflation rate came in at 0.3%, a notch lower than the median estimate of 0.4%. Excluding volatile goods, the core inflation rate stood at 0.1% in April, which again was a notch lower than the 0.1% inflation rate anticipated by economists. Likewise, last Thursday, the core producer price index (PPI) was revealed to be 0.1% in April, just under the market’s prediction of 0.2%.

The strong GDP data and favorable political developments are expected to keep the pound bullish, while the greenback is expected to remain volatile on uncertainty over trade talks.

Technically, the GBP/USD pair faces resistance 1.3265 and gets support at 1.2768. Additionally, the momentum indicator remains flat. As a result, we can expect the currency pair to remain range-bound in the short-term.

GBP - technical analysis - 13th May 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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