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Pound Pares Gains Post PM Speech

Article By: ,  Senior Market Analyst
May 21, 2019 1:33 PM
The pound continued to experience volatility on Tuesday after Theresa May gave a speech on Brexit. Prior to her speech the pound had rallied, piercing $1.28 on hopes of Theresa May offering Parliament a vote on a second referendum. However, this was a classic case of buy the rumour sell the fact as the pound dropped off session highs back to the mid $1.27’s following Theresa May’s speech.

Theresa May effectively put the Brexit ball in Parliament’s court. Her attempts to appease both the pro-Brexiteers (that the backstop won’t be needed) and the Remainers with the promise of a vote on a second referendum don’t appear to have worked judging by MP’s immediate reactions.

Pound traders weren’t convinced by Theresa May’s attempt to be both black and white, for both Brexiteers and Remainers. The fact that the pound gave back earlier gains indicates that the markets believes MP’s on both sides will smell a rat and stick to their corners. Without Parliament backing this deal in two weeks’ time, Thresa May could be handing in her resignation sooner rather than later.

Sterling has been under pressure across the past week as no deal Brexit fears are returning to haunt pound trader.

The pound slipped below $1.27 earlier in the session, for the first time this year as Theresa May’s Brexit bill looks set to fail again and as candidates line up to replace her.
Theresa May impending exit raises the possibility of more hard-line pro-Brexit replacement. This in itself raises the chances of a no deal Brexit. 

Pound traders will be watching the European Parliamentary elections this week closely. A solid performance by Nigel Farage’s Brexit party could cement support for a hard line pro-Brexit Conservative leader. The outlook is not good for the pound as no deal Brexit fears return to haunt traders. 

Up next UK CPI

Tomorrow’s inflation figure is expected to be 2.2%. Whilst this is above the central bank’s 2% target, it is unlikely that this will prompt the BoE towards tighter monetary policy. With Brexit concerns lingering the central bank has its hands tied on policy until October. It would take a big shift in economic data for the BoE to move before the future of Brexit was understood. Even a beat tomorrow is unlikely to drastically change the course of the pound.

The pound continues to trend lower and has broken out of its recent trading range, falling as low as $1.2685. Should Theresa May fail again at Brexit the pound could sink back to $1.20.




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