The GBP Facepalms as UK Prime Minister Exits from Brexit Process

. 4 min read

Overview:

  • The US Dollar slides lower as trade tensions start to bite the economy
  • The British Pound holds steady ahead of a volatile session after the PM announces her departure date (June 7th)
  • NYMEX WTI crude plunges below $60 a barrel after heavy selling pressure

Highlight:

The Brexit saga claims another bounty after the UK Prime Minister announced her departure. The GBP is currently searching for a new direction after dropping to its lowest level in four months. Economic data has taken a back seat, and we expect uncertainty over the Brexit process to continue to influence the currency. At this point, all options, including a no-deal exit, are on the table.

US DOLLAR

The US Dollar Index is navigating in negative territory for the second successive session after latest data revealed lower than expected factory orders for April. New orders for manufactured durable goods declined 2.1%, the second drop in the last three months. Shipments recorded a decrease of 1.6%.

The ongoing China-US trade stalemate is pushing the market to rethink the looming prospects of a global economic slowdown. Oil reacted first. NYMEX WTI came under heavy selling pressure and losing nearly 6.65% yesterday over similar concerns and is dragging commodity-linked currencies lower. The currency market is expected to see “play it safe” flows today ahead of the long weekend.

BRITISH POUND

The sterling is choppy, trading around the 1.27 handle as the market tries to re-assess the implication of a not-so-surprising announcement from 10 Downing Street. PM May is expected to step down on June 7th. June 7th is also National Donut Day, which isn't overly funny or ironic in and of itself. The baked delight, however, does resemble the number of people who are surprised that this happened.

Her latest proposals to the Withdrawal Plan were heavily criticised from all quarters. The market is expected to remain highly volatile over more political uncertainty and as we draw closer to a no-deal exit. Meanwhile, businesses and the Pound are bearing the burden of this political mess. Retail sales for May fell at its fastest pace since October 2017 according to the latest CBI survey. Businesses, as expected, are putting investment plans on hold until the Brexit uncertainty ends.

EURO

The EUR/USD made a significant technical turnaround after touching its lowest 2019 level yesterday. The shared currency is now clinging to recent gains, trading around the 1.12 handle. The bounce was mostly on the back of weak US PMI data and lower US Treasury yields. In the absence of macro-economic data, we expect the ongoing EU election to keep investors cautious.

CANADIAN DOLLAR

USD/CAD is trading within the proverbial Goldilocks zone with the recent move largely dictated by sliding oil prices. WTI is holding steady near a 9-week low, after seeing significant selling pressure yesterday. Lower PMI and durable goods orders are expected to limit any downside movement and hence keep the pair inside the 1.34-1.35 trading range.

AUSTRALIAN DOLLAR

The Australian dollar rose above the 0.69 marker yesterday relative to the greenback. It may be on the advice of our APAC analysis desk yesterday, however, it is good news for the region, which has endured a difficult week.

FEATURED CURRENCY

USD/JPY seems to take a rest after dropping to its lowest level in a week. The global risk-off sentiment is still prevailing, with no positive announcement from either China or the US. Meanwhile, the Japanese All Industries Activity Index came in softer than market consensus, dropping by 0.4%. This reading follows yesterday’s poor PMI, which fell into contraction territory.  The pair will be trading with a cautious bias with attention now shifting to US-Japan trade relations.

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"May vows to hold nerve after Brexit talks hit impasse"by Tiocfaidh ár lá 1916 is licensed under CC BY-ND 2.0