GBP Slides on Back of Imminent Exit of British PM

Alan Penny

23 May 2019

3 min read

GBP slides

The US dollar saw gains against the British pound on the back of a pessimistic market outlook. British PM Theresa May’s imminent exit, along with the disaster that Brexit has become, led to the pound losing against the USD. The situation also hasn’t done much for the European parliamentary elections starting today.

Thus, on Thursday, at 7 AM GMT, the GBP/USD was trading at $1.2605, which represents a new low for 2019. It rallied for a short time, but it continued to fall after Andrea Leadsom announced her resignation.

Andrea Leadsom was the lawmaker in charge of organizing government business in the House of Commons. She chose to resign instead of introducing Theresa May’s revised EU Withdrawal Agreement bill, which certainly rocked market faith. Many now expect that Therese May will put forth her resignation within the following few days.

The pound also lost against the euro, hitting its lowest point in four months at 1.1321. Ulrich Stephan, a strategist for Deutsche Bank, believes that there’s a strong likelihood power in the UK will soon change hands, and that a “hard Brexit” is likely at the end of October. Both situations would put the pound under significant pressure.

USD Gains as Fed Announces No Interest Rates Cuts

The dollar index created a new 24-month high of 98.13 as the GBP lost ground. This index is used to measure the USD against a basket of six other major currencies.

Some of the gains can be attributed to the Federal Reserve, though. The Federal Reserve’s Federal Open Market Committee released the minutes from their last meeting. The minutes showed that the Fed has absolutely no intention of cutting interest rates anytime in the near future.

This news also led to the AUD and NZD losing ground against the dollar during the Asian trading session.

Yuan Slides as Trade Tensions Increase

The Chinese yuan lost 0.2% on the back of new fears over the US-China trade negotiations as the situation seems to be declining.

The market seems to be losing hope that the two countries will come to a satisfactory trade agreement. The result has been that investors are moving their money into safer currencies.

Thus, investors who held long positions on the yuan until the end of April have increased the number of short positions to the highest level seen in six months, according to a poll.

While the Chinese economy has suffered somewhat due to these issues, the measures meant to ease the situation have started to have an effect. Unfortunately, the tensions have once again escalated, leading to the yuan losing approximately 2.5% since President Trump’s announcement that he would be raising tariffs on Chinese imports at the beginning of May.

Countries such as South Korea and Taiwan that rely on trade will be severely affected by these trade tensions.

An increasing number of investors have shorted both these currencies. In fact, the South Korean won hasn’t seen this high a volume of short positions in over a decade. The situation has been aggravated by weak domestic economic results.

Written By
Alan Penny

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