Sterling managed to regain some its losses against the majors during yesterday’s trading as negative news surrounding Brexit developments subsided temporarily.
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The political landscape has very much changed as overnight, it emerged that 10 of the Democratic Unionist Party have withheld their support on the Budget for now, saying that Theresa May must stick to her side of the agreement otherwise they could withdraw their support and bring her Government crashing down. This has put pressure on sterling as we start the day today.
The UK media has put severe pressure on Prime Minister Theresa May since Thursday when 2 of her Cabinet ministers resigned over the dissent of the deal. GBP had become unnerved following this but has found its footing again as Theresa May survived the onslaught and has remained tight lipped over the finer details of her Brexit deal.
I have no doubt in my mind that GBP’s value will remain hyper-sensitive to Brexit movements in what will be another important week for the Prime Minister and her Government. The PM yesterday confirmed that she will be in contact with Brussels over the coming days, and that sterling’s value will be influenced by the outcome of this.
It is widely expected that Theresa May will seek concessions from Brussels over her Brexit deal as she tries to rally whatever support she can between now and Brexit. The risk of a hard Brexit remains a very large threat to the UK economy and could bring GBPEUR to parity if these rumours look set to become reality.
Theresa May started the week off on a positive foot as she delivered a defiant speech at a CBI conference in London. Her speech did actually help to sure up sterling, however the sentiment surrounding sterling is definitely volatile and I'd expect it to become more so as the week goes on.
Today, Mark Carney will speak at a treasury select committee and is likely to talk about two key topics, Brexit, and wage growth combined with inflation. With UK wage growth picking up in recent months, I personally think any talk of the UK economy being able to support a rate hike in 2019 could provide sterling with some respite throughout a difficult time.
Important UK data comes in the form of UK manufacturing data but is likely to be overshadowed by Brexit developments this week.
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