Sterling is struggling – 4 reasons for the downfall

The British pound is falling some 100 pips against the US dollar and the picture is not much brighter for Sterling against the euro or the yen. Political developments over the weekend dominate the scene, but there are other reasons for the drop as well.

Here are four reasons for the fall of the pound and the next levels to watch out for.

1. Brexit negotiations are stuck: We already know about the deadlocked talks and also about the expectations to get some progress by the EU Summit in December. And after setting a two-week ultimatum of sorts, the EU chief negotiator Michel Barnier hit out and said that the EU is preparing for a “possible collapse” of the Brexit talks. He said that a failure will have consequences on multiple domains. This isn’t good news.
2. May under growing pressure: Hot off the heels of seeing two cabinet ministers go for various reasons, Prime Minister Theresa May is now suffering a major rebellion within her party. 40 MPs from her party say she must go. In addition, foreign secretary Boris Johnson and environment minister Michael Gove sent a worrying letter to May, hitting against soft-Brexiteers in her government. The internal strife is a source of worry also for the European counterparts.
3. Ominous signs from consumers: According to credit card company Visa, British shoppers have cut spending by the most in over 4 years. The fifth fall in the past six months saw a big plunge of 0.9% m/m and 2% y/y. Pay rises are not able to keep up with inflation, which is higher mostly due to the weaker pound. We will get inflation figures tomorrow, the jobs report (with wages) on Wednesday, and the retail sales numbers on Thursday.
4. House prices are falling: According to Rightmove, house prices have fallen some 0.8% in November, after a rise beforehand. London is suffering more than any other area, a setback after a few great years.

GBP/USD tumbling down

Pound/dollar is trading at 1.3090 at the time of writing, down from a high of 1.3180, which is already below the close at 1.3190. It already reached 1.3080 earlier in the day.

1.3080 still remains a line of support before 1.3030, which is the bottom of the range. Resistance is at 1.3180 and 1.3220.

Here is the one-hour chart:

More:  GBP/USD: Forget the hike, watch Brexit