10 Reasons Why Sterling Could Break Lower

Sterling and Theresa May Under a Lot of Pressure
Under Pressure

Sterling and Theresa May Under a Lot of Pressure

Sterling is taking a beating and is already 1.3¢ lower from Friday’s close.

GBP/USD has traded through the long-term up-channel support we’ve been discussing.

Of course, the support could still hold, the break hasn’t been confirmed.

On a quiet news day it’s all about Brext and how weak Theresa May is.

Pressure on PM Piling Up

  • warningThe Sunday Times said that 40 Conservative MPs have agreed to sign a letter of no confidence in the PM. Just 8 MPs short of triggering a leadership contest.

  • warningEU chief negotiator Michel Barnier has confirmed that the EU is planning for a “no deal” scenario

  • warningBarnier is also saying that the UK needs to clarify, within the next 2 weeks, how much it will “honour its obligations”. If not, trade talks need to be “put back”.

    I’m not a big fan of Barnier but at some point Theresa May & co. need to say what they want and what they’re offering.

  • warningThe PM is also facing a tricky Brexit Bill later this week. It’s suggested that pro-Europe Tory’s could vote with Labour in order to ensure Parliament gets a semi-meaningful vote on the EU deal.

    Long-term, any such amendment is probably wise, it means David Davis can’t do what he wants and we’ll get a more balanced approach. Short-term that puts more limits on the UK-negotiating team.

  • warningThere’s also more palace intrigue with news that Michael Gove and BoJo sent a secret Brexit letter to the PM – more on this in the Guardian.com.

Time to Close My Dollar-Sterling Spread Bet

All of this is putting a lot of weight on Sterling.

I’ve closed my GBP/USD spread bet for a £50 loss.

If the support holds then I’ll buy back in.

Right now I don’t want to be on the wrong side of the up-channel support not holding. A break lower could be expensive.

Dollar-Sterling: November 2016 to November 2017 Up Channel
Dollar-Sterling: November 2016 to November 2017 Up Channel

A Closer Look at the Dollar-Sterling Up Channel
A Closer Look at the Dollar-Sterling Up Channel

10 Reasons Why Sterling Could Break Lower

Despite all the bad news, it’s not difficult to imagine more bad news and that won’t help May or the pound:

  1. Another sex and/or abuse of power scandal like Michael Fallon?

    Damian Green, a close ally of the Prime Minister, is on the ropes. See BBC.co.uk – Police chief “was told of Damian Green pornography claims”.

  2. The PM having to “accept another resignation” like Priti Patel?

  3. More plotting from BoJo or Gove? This is probably going on, it’s just a question of whether it becomes public or not

  4. Another balls-up from BoJo?

  5. The above Brexit Bill?

  6. A few more MP’s adding their names to the letter of no confidence?

  7. More pressure on the PM to fire Boris? She’s lost two cabinet members in the last two weeks (Fallon and Patel). That makes it more difficult to fire Boris. It also reinforces how weak May is.

    External Pressure?

    If there is more pressure on the pound it’s more likely to come from internal Conservative party politics rather than the EU, Corbyn or economic data:

  8. Pressure from the EU? The EU have shown sympathy for Theresa May / a willingness to keep her in place. They probably won’t use this opportunity to kick her while she’s down

  9. Jeremy Corbyn? The Labour leader could add some fuel to the fire but he seems unable or reluctant (and he’s no fan of the EU).

    Vince Cable seems more able to cause some damage but he’ll need more air time.

  10. Poor UK economic data? Yes, this could add further strain. At the same time though, most of the recent data has been solid enough to support Sterling.
That’s not to say we should completely discount poor UK data or a third party taking the political initiative.

Too Many Risks

There are too many risks on the table for GBP/USD, even for my small £0.50 buy.

I’m out.

Also see live GBP/USD chart.

AuthorAlex Turner

Senior Editor, SpreadBetMagazine

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