(18 JULY 2018)DAILY MARKET BRIEF 2:Rebound for the pound ?

(18 JULY 2018)DAILY MARKET BRIEF 2:Rebound for the pound ?

18 July 2018, 15:18
Jiming Huang
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Despite May 3-month unemployment data given at 1975 low (4.20%), sterling dropped against its major peers amid disappointing wage growth and mounting uncertainties relating to yesterday’s parliamentary vote.

Indeed, despite a tight majority (6 votes difference), May’s government had the final word on an amendment bill that would have required the UK to try negotiating a customs union arrangement with the EU in the scenario of a no-deal by 21. January 2019 deadline, which already supports free trade for goods. Prior vote on an amendment to remain within EU medicines regulatory framework endured a different fate as it got accepted by a small majority of four votes.

Accordingly, the narrow victory against soft-Brexit supporter MPs is an obvious sign that May is having difficult times to maintain a majority of supporter of her Brexit plan within the Parliament. Therefore, risk of seeing May being overthrown is mounting due to a greater number of soft-Brexit advocates within the parliament and increasing questioning of May’s leadership. Recent amendment refusal will not be helping the situation in any case, as it rather reinforces the course of a hard Brexit.

Hence, amid rising uncertainties around Brexit orientation, the BoE will be looking at UK – EU negotiation development before announcing further rate hikes after 2. August 2018 meeting. In any case, recent labor market data, and most certainly June inflation data as well, will tend towards further policy tightening.

As August rate hike is a priced in scenario and inflation data will remain pound supportive, the pair will most likely benefit from a weak boost in the short-term, which will most probably fade out due to increasing political worries. GBP/USD is approaching its 03. November 2017 range, currently trading along 1.3083 and heading towards 1.3070.

By Vincent Mivelaz

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