The Pound Sterling Declining Against Major Rivals As Brexit Jitters Rekindle
The latest whispers concerning Brexit are weighing on the British Pound as it continues to slip against major rivals. To be sure, British PM’s cabinet seems bitterly divided on the progress of the cross-party talks aimed at finding a consensus on Brexit. According to reports, a section of the cabinet wants the PM Theresa May, to ax the talks. As such, the Pound Sterling is taking the heat from the debacle, and it is declining.
GBP paring gains six days consecutively
For starters, the Pound has been one of the best-performing currencies in the better part of this year despite the Brexit drama. By mid-March, the Pound was strong at 3.4% year-to-date against the US dollar and only second to the Mexican Peso. Interestingly, this good performance was on the back of optimism by traders regarding a successful Brexit. The optimism was particularly highest when the PM initiated the cross-party talks to find an end to the debacle before the EU elections.
Unfortunately, the latest whispers about Brexit are tearing down the optimism. According to the pro-Brexit faction of the cabinet, the talks between the Labor Party and the ruling Conservative Party have failed to deliver six weeks later. Notably, a group of senior Tories and former cabinet members beseeched the PM not to compromise with the opposition. In particular, they argue that such a compromise would split the Tories right in the middle.
Softer jobs data exerting more pressure of the Pound
In the wake of the developments, the Pound dropped against the Euro on Monday. Notably, this becomes the sixth consecutive drop as the euro continues to firm. In the early morning trading hours on Tuesday, the Pound to euro exchange rate was at 1.152. According to knowledgeable observers, the current performance is the worst since September 2017.
Further pressure was piled on the Pound Sterling due to disappointing UK jobs data. Notably, the wages in the UK labor market for March grew by 3.2% against a market expectation of 3.4%. Also, employment data came in softer after the economy registered 99,000 jobs. This is way below the market expectation of 141,000. Nonetheless, the market experienced an unexpected decline in unemployment to 3.8%.
Investors counting heavily on a soft Brexit for the survival of the GBP
Although the data gives the Bank of England a room to wiggle and an option not to raise interest rates, the Pound is crumbling under the softer data. In particular, the disappointing data was also behind the GBP’s decline against the US dollar. To be sure, the USD/GBP exchange rate was up to around £0.7725 on Tuesday.
The decline of the pound sterling is a testimony that the Brexit debacle overshadowed the impressive performance on the unemployment front. To be sure, the last time the UK unemployment rate was at 3.8% was 44 years ago. However, traders seem to be much more worried about the twists in Brexit. As such, the market is waiting with bated breath as the PM works toward the conclusion of Brexit before the end of July.