The bearish funk continues for Sterling. The British currency is falling to two-year lows amid weak economic data and a looming Brexit deadline. Political disputes with the United States and China haven't helped matters. The Pound is now testing important levels against both the Dollar and Euro. But where do we go from here?
The British Pound is set to finish the month of May sharply lower after several weeks of losses versus other major currencies. Against the buck, Sterling is off 3% and near the lows of the year. There might be little relief in sight, given the uncertainty ahead of an October Brexit deadline and after the abrupt resignation last week of UK Prime Minister Theresa May.
On Monday, the British Pound shot 1% higher. Those gains were magnified in the Asian and London trading sessions before the pair sold off sharply. Coming into the office Tuesday, futures and forex traders in the U.S. will see that move nearly fully reversed, with the GBP/USD trading at 1.3060, down from a high near 1.33 in overnight trading.
Tuesday's move came as U.K. Attorney General Geoffrey Cox offered a legal opinion that may make Prime Minister Theresa May's plan less likely to pass today when it comes up for a vote. Ahead of that key vote, here is what to look for as you trade the British Pound.
The theme heading into 2017 was one of worry. Many in the market were worried there was going to be something to be worried about, expecting factors outside of typical “norms” would dominate the global economy. Brexit was one of the first “shocks.” Then President Donald Trump’s election in November 2016 magnified these concerns.
While equity markets took Brexit in stride, the Pound fell sharply. On June 23-24, 2016, Sterling fell from above 1.50 in the hours leading up to the vote results to settle at 1.35 at the end of the week – a 10% decline. By year end 2016, the Pound fell another 10% to close at 1.2343.