Critical day for the Pound

18 July, 2018

Matthew Boyle

It has been a tough week for the Pound following the resignation of 3 cabinet members, and as Brexit and its surrounding uncertainty reaches fever-pitch. Yesterday a bid by Tory rebels to create a customs union was seen off and defeated by only 6 votes. In total 12 conservative members rebelled against the party by supporting the amendment, but May and her government were supported by four members of the Labour party. This was after Tory MPs were warned that voting for the amendment (had it of passed) would have led to a vote of no confidence in the PM or a general election. Albeit the trade bill was passed this was a closely fought battle for Theresa May, and despite the UK posting some good eco stats yesterday we saw GBP>EUR rates drop to a 3-month low.

Today is a critical day for Theresa May, Brexit negotiations and indeed GBP rates as we see Prime ministers Question time – the last opportunity for parliament to meet before they break for the Summer. Without doubt, Jeremy Corbyn will be ramping up the cries for her resignation, which will only add fuel to the fire of uncertainty that currently burns brightly. Following that May will then attend a meeting of the 1922 committee of backbench Conservative MPS, amidst rumours they are seeking to remove May and are getting close to the 48 signatures required to trigger a no-confidence vote and a leadership election. Ex Tory PM John Major has himself suggested that a leadership battle and early general election looks inevitable, and is this happens this would only see the Pound suffer.

Aside from the ongoing political commotion we also have UK inflation figures today at 09.30, which many suggest might show an increase, and as such pave the way for an interest rate hike. Indeed, many analysts are suggesting that at present a Bank of England rate hike is being priced into the market at 80%, and as such, this is offering a level of support to GBP rates that would otherwise not be there. This is concerning given yesterday’s drop and should the ever-Dovish Mark Carney once again decide to kick back the idea of a hike this could pull the rug from under the Pound.

Without a doubt, it is a critical day, with downside risk remaining extremely high. Given how tightly rates have moved for several months, and should we see a double-whammy of no suggested interest rate hike, added to a leadership battle it could spell bad times for the Pound. The only thing May and the Pound can hope for is that she can steer the government through these tough times… if she can there may be some hope.

Speak to your Currency Index broker today for some friendly guidance on how you can help to take the risk out of your upcoming transfer in what are concerning times.