The Pound Sterling Drops To Five-Month Low Due To Rising Risk Of Hard Brexit
The Brexit issue has continued to hammer hard at the Pound Sterling, pushing it down to a five-month low against the Euro as Britain gets closer to a no-deal Brexit.
The GBP plummeted to a five-month low against the Euro on Tuesday as Brexit evangelist Boris Johnson drew closer to becoming the next Prime Minister of Britain. He might be the successor to Theresa May who recently announced her decision to step down as Prime Minister after failing to secure a Brexit deal.
The situation sparked more concerns from investors who in turn practiced more caution in their GBP trades, thus the currency showed bearish performance.
Fears about a hard Brexit have previously impacted the Pound
The GBP plummeted against the Euro after the results of the second voting round were announced. The results revealed that Johnson was in the lead after outperforming all the other contenders. The currency’s bearish performance took it back to a level that was previously seen in mid-January this year.
“Fears of a disorderly exit could keep the path of least resistance to the downside,” stated JFD Group’s senior market analyst Charalambos Pissouros.
The Brexit pressures caused a 6% drop in the value of the Pound against the Euro in May as investors grew worried about the looming threat of a no-deal Brexit. The growing concerns have led to fewer bets on the currency, especially as statements by the Bank of England did little to dispel the concerns.
European policymakers believe that interest rates might have to be increased sooner than expected. Meanwhile, traders are not rushing to change their expectations, especially considering that there have been no rate hikes to influence the pricing of futures markets.
The Pound’s performance has also pushed the GBP/USD to a bear trend
The GBP’s poor performance this year has also affected its value against the US dollar, and the results of that impact are evident by the bullish GBP/USD trend that has pushed into 5-month lows. The GBP/USD exchange rate dropped for four consecutive trading sessions, reaching levels that were last seen in January this year.
The US dollar has also had its fair share of shakeups this year, with the major one being the trade war with China. The USD has also come under pressure following a slew of unappealing market reports such as declining unemployment and slowed manufacturing in key markets such as New York.
Global trade has also taken a hit after the declining performance with intensified geopolitical tensions such as the Brexit issue and the trade standoff between China and the U.S. These issues have affected the global trade leaders and the impact trickled down and affected trade in the rest of the world.
For example, less productivity in the European automotive industry as a result of the Brexit impact has affected vehicle imports in other countries.
Unfavorable economic situations are not appealing to investors who then adopt a cautious approach with their investments. Some even opt not to invest in any currencies until more stable conditions are achieved.