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May Resigns - What Does it All Mean for GBP/USD?


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Market Drivers May 24, 2019

Aussie feels pressure from rate cut projections
UK Retail Sales bit better
Nikkei -0.16% Dax 0.72%
Oil $58/bbl
Gold $1282/oz.
Gold $1275/oz.

Europe and Asia:

UK Retail Sales 0.0 vs. -0.3% eyed.

North America:

USD Durable Goods 8:30

Theresa May announced that she should resign on June 7th paving the way for a new leadership election of Tories and a new UK PM to deal with the Brexit drama.

Ms. May who managed to alienate every faction of UK politics in her quest to deliver a Brexit without consequences was widely reviled by both her party and the opposition and her departure initially produced a relief pop in the pound through the 1.2700 figure, but the move was quickly sold as markets feared that Tories may elect an even more extreme Brexit leader such as Boris Johnson who could pull UK out of EU without any deal whatsoever.

Thus the uncertainty of Brexit will now be replaced by the uncertainty of Tory leadership contest as political headlines will continue to dominate trade in cable. The political situation in cable is made even more toxic by the strong showing of the Brexit party in this week's EU elections and the utter failure of Labor to provide a credible alternative to Ms. May's proposals. Labor which itself is torn between Brexit and Remain forces and is hobbling along under the limp leadership of Jeremy Corbyn - a political figure who is detested almost as much as Ms May - could suffer massive defeat in EU elections creating a vacuum in UK politics.

All of this creates an unstable brew of rivalries and minority fractions in UK Parliament and perhaps creates the prospect of a Boris Johnson leadership going forward. Mr. Johnson a long-standing figure in UK politics with a clownish reputation is hardly the type of politician to bring calm and order to the markets.

Still, for now, cable has taken the news in stride and the next moves in the pair will be governed by the next round of speculation regarding Tory leadership. For now the 1.2500 figure will be the key psychological support for the pair while upside will be capped by 1.3000. The reality on the ground is that UK remains in the EU and despite the seemingly looming deadline from EU, that date will likely be extended by the Europeans who have no interest in seeing a chaotic sudden rupture with UK. Still, the sense of uncertainty has certainly taken its toll on UK business investment and consumer demand so cable is unlikely to get any lift from eco data as the trade in the pair remains purely political.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.





This article appears in: Investing , Forex , Currencies



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