British Pound Turns Bearish As Probability Of Hard Brexit Rises
May has so far proved to be quite unfavorable to the British Pound (GBP) which has remained bearish, particularly due to Brexit concerns. This is an issue that has prevailed for quite some time now, and it reflects on the currency's performance.
To put things into perspective, renewed talk about a potentially hard or no-deal Brexit forced the GBP into a corner, with its price hitting a four-month low on Friday last week. Things took the dark turn for the currency after British Prime Minister Theresa May revealed to her colleagues that she planned to exit her leadership position possibly in June.
Theresa May announces plans to step down as the British Prime Minister
May's announcement comes on the heels of her failed attempts to secure a deal with the European Union for a soft Brexit. However, her efforts failed, and she has already started making plans for her exit as Prime Minister, with or without a deal pending the vote scheduled for June. Another factor that has potentially contributed to the GBP’s downcast performance is the high probability that May will be replaced by someone that is in favor of a hard Brexit.
Some reports already say that Boris Johnson, who was previously Britain’s Foreign Secretary plans to vie for the Prime Minister position. This has contributed to the GBP’s further decline. It also highlights the huge impact that Brexit has so far had on the GBP’s performance. The impact has been so big that the GBP has been the worst performer among all the major currencies since the start of May.
Meanwhile, opposition leader Jeremy Corbyn recently exited Brexit negotiations saying that the talks went as far as they could. The Brexit talks have further weakened the GBP against the US dollar, thus obliterating the small gains that were seen on the charts the last time Brexit talks were postponed, giving rise to the possibility of a favorable deal.
GBP/USD’s performance indicates the impact on Brexit
British Pound’s performance against the US dollar in April, especially from around mid-month indicates that there was a strong bullish trend at around the last time that British legislators were holding Brexit talks. It then highlights a slight surge after talks failed and were pushed back to June. The current bearish performance comes as the clock counts down to the next vote, during which the lawmakers will decide whether to accept or reject May’s proposed Brexit deal.
The Brexit issue has also negatively affected trade in the EU, and it further adds to the gloomy state of the global economic market. The trade war between China and the U.S. has also contributed to that mood. These issues, coupled with the economic uncertainty of the European region, have hit hard at the GBD, thus discouraging investors, and thus the weakened currency. Investors and market custodians are working on measures that will cushion against a hard fall or severe impact, especially in case of a no-deal Brexit.