Sterling went under renewed pressure on Monday morning with Brexit negotiations expected to make a comeback this week. The pound was the worst G10 performer as it slid 0.50% against the greenback with GBP/USD easing as low as 1.2967.
Over the last few days, the pound has been testing the 1.3000-50 resistance area as investors anticipated a strong Tory majority at the upcoming general election. However, their confidence has been damaged recently over Prime Minister Theresa May’s propositions to amend the social care system and revelations that its introduction was kept in the strictest confidence, putting into question the unity of the Conservative party.
Knowing that the GBP has been rallying strongly on anticipation of a stronger Tory majority following the elections, investors are naturally trimming their bullish bets on the pound. GBP/USD has returned below the 1.30 threshold and is heading towards the next support at around 1.29. We remain cautious on the GBP outlook, especially since the tone between the EU and UK has turned up as discussions surrounding the “divorce bill”.
By Arnaud Masset