The pound enjoyed a period of consolidation after PM May stabilised her position thanks to a controversial government. However, things never stand in the same place. Her narrow majority is already running into instability.
GBP/USD is reacting by losing the support line of 1.27, hitting a new low 1.2670. We are still not at the post-elections low of 1.2643 or the old support line of 1.2615, but things are not looking that positive.
Here are the latest developments that pound the pound:
- Brexit minister talks hard Brexit: David Davis is getting ready for Brexit talks and the stance remains a hard Brexit. Some had hoped for a softer approach, but he doesn’t provide the goods. The minister insisted that a “no deal is better than a bad deal” and that they will “play hard”.
- Scotish Conservatives want a soft Brexit: The Conservative Party fell short of a majority in parliament but managed to cobble up a deal with the DUP’s 10 MPs. Things could have been worse without Scotland. The Tories gained no less than 12 seats up north: from one to 13 seats. The Scottish Tories have their issues with the DUP, which is a reactionary party in comparison to the more liberal Scots. In addition, the Scots will work together and they are already showing their muscle. The faction led by Ruth Davidson wants a softer Brexit. Each part of the party is pulling it in a different direction.
- Delays everywhere: Brexit talks were supposed to begin on June 19th. It has now changed to “the week of June 19th”. Sure, the 19th is a Monday, so a delay of a few days is not a big deal. However, we do not have a new date. And, the beginning of the Brexit talks depends on getting the new government in place. The vote of confidence, or so-called “Queen’s Speech”. And Her Majesty may also have to wait. There are fresh reports that the speech will be delayed, pushing back Brexit negotiations.
- Rating agencies warn: Moody’s, Fitch and S&P have all warned about the implications of the British elections. These companies are often late to the game, but if they downgrade their ratings, the UK’s borrowing costs could rise.
The clock continues ticking towards Britain’s exit. March 2019 may seem far but there are heaps of things to agree upon. According to Article 50, Britain will be out and will trade under the worst conditions from March 2019 if no deal is reached.
Markets are focused on Brexit more than anything else. Usually, a continuation of a Conservative government would have caused cheers, as markets prefer market-friendly policies. However, it’s all about Britain’s exit from the EU.
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