Sterling Pound Continues To Slide Against Major Rivals On The Back Of A Major Sell-Off

Sterling Pound Continues To Slide Against Major Rivals On The Back Of A Major Sell-Off - London background, transparent EU flag and UK flag
Bill Cascade   NEW 28/05/2019 00:00:00 Forex

Since the 2016 vote to leave the European Union, the British Pound has been underperforming major rivals. On May 21, the Pound sunk to the lowest levels since January 2019 against the US dollar when it traded at $1.2702. If the Pound was under pressure from the Brexit debacle, then the recent announcement that the British PM would step down in early June should jolt the market.  

14 straight days of losses

By Friday, the EUR/GBP pair was on track to registering 15 straight days higher. After the plunge on May 21, the pair broke the 200 days MA after trading above the 100 days MA at 0.86751 for the first time on May 15. Before Friday, May 24, the GBP had lost 14 straight days against the Euro. The news that the British PM would resign fueled more bearish action against the Pound, which in turn amplified the tailwinds for the EURGBP pair.

The uncertainty around the UK quest to exit the EU is to blame for the woes facing the Prime Minister. A few weeks ago, the PM tried to engage the opposition in a cross-party negotiation to pass a new Brexit deal. However, the PM faced a rebellion from her party, and that set the stage for the end of her career. On Friday, Theresa May finally bowed to pressure and offered to vacate 10 Downing Street once the Tories find her replacement.

Market reaction to May’s resignation

Theresa May’s resignation was highly anticipated. As such, traders had priced it in such that no huge movements would follow her actual resignation. Unsurprisingly, the sterling gained some ground against major rivals after 14 straight days of tumbling. To be sure, the Pound was at $1.269 on Friday, which represents a 0.2% gain from previous levels. Against the Euro, sterling rallied 0.1% settling at 88.2 pence. Notably, the rally came after traders cut back on the negative trades on the GBP while they wait for new Conservative Party leadership.

However, there is a possibility of the Pound resume the losing streak against the rivals. After May made clear her plans to vacate office, various contenders for the PM seat have come out. Of the candidates, two of the most likely replacement for May are Eurosceptics who increase the chances for a hard Brexit.

Race for replacement is on, sterling’s value shaky

Boris Johnson, a staunch pro-Brexit campaigner, is tipped to have 40% chances for replacing May. If he succeeds, strategists anticipate the Pound to fall significantly. According to strategists at Oanda, the Pound could tumble to $1.20, levels last seen in 2017, if Boris Johnson clinches the position.   

Another serious contender for the seat is Andrea Leadsom, a former leader of the House of Commons. Leadsom is also a staunch anti-EU, and the possibility of her being the PM is shaking the value of the Pound. Oanda strategists believe the likelihood of the two Brexiteers being the PM has raised uncertainty around the Pound.

A note from Oanda said, “Uncertainty is elevated, and the British pound volatility should grow. Since no-deal chances are increasing, we should see sterling’s rally capped.”







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