Another round of Brexit plot twists dethroned the pound from its top spot and dragged it all the way down to the bottom of the forex pile. Any chance of a recovery this week?
Brexit, Brexit, Brexit
Pound bulls were barely able to charge on news of a draft deal being approved by PM May’s cabinet last week as one resignation after another was the stuff of headlines. This time, the focus is on the looming possibility of a leadership challenge.
As of this writing, No. 10 has assured that the threshold for a no-confidence vote has not been met, adding that such would derail their progress in Brexit. Note that Conservatives are trying to garner at least 48 letters for a leadership challenge as they are not happy with the draft transition deal that the U.K. struck with the EU.
EU27 European affairs ministers have a pow-wow to start the week, possibly to start preps for a summit next weekend. Meanwhile, sources are reporting that EU officials are still trying to agree on the content of the political declaration and the absolute end date for the extension of the transition period.
BOE Inflation Report hearings (Nov. 20, 10:00 am GMT)
The only catalyst on the economic calendar of the U.K. this week is the BOE Inflation Report hearings, during which head honcho Carney and his fellow policymakers are due to testify on their policy outlook in front of Parliament.
Brexit is still likely a main topic on the table as policymakers might be asked on more deets about their preparations for a “no deal” situation. Any indication that this uncertainty is causing officials to rethink their hawkish stance might spur another round of losses for sterling.
Last Week’s Price Review
After two weeks of being a net winner, the pound will finally get a bitter taste of defeat since the pound got a severe pounding and is currently THE biggest loser of the week (as of 3 pm GMT).
The pound showed weakness from the get-go by gapping lower across the board, thanks to reports over the weekend that some anti-Brexit ministers were on the verge of quitting, as well as reports that British PM Theresa May supposedly canceled a Monday cabinet meeting.
However, a report was later released during Monday’s morning London session. And the report claimed that there was no cabinet meeting scheduled on Monday, contrary to reports over the weekend. And that allowed the pound to lick its wounds.
Bears would return to kick the pound lower during Monday’s U.S. session, though. There were no apparent negative catalysts, but it’s possible that the pound may have fell victim to the Greenback’s strength at the time.
In any case, bulls got revived when Tuesday rolled around, probably because the pound was feeding off the Greenback’s weakness after the Wall Street Journal (WSJ) and South China Morning Post (SCMP) reported that the U.S. and China will be restarting trade talks.
More GBP bulls then charged in when hopes for a Brexit deal grew during Tuesday’s morning London session, thanks to British Cabinet Office Minister David Lidington’s comment that a Brexit deal is “within touching distance now” and that he’s “cautiously optimistic” that the E.U. and the U.K. can agree on a deal within 24-48 hours.
The pound did get hit by selling pressure during Tuesday’s U.S. session, probably because of profit-taking since the pound wobbled after the draft of the Brexit deal was leaked.
Dip demand was notable, though. And the pound was even rushed by buyers, thanks to a rumor that Raab, Hunt, Javid, Gove, and Cox supposedly supported the draft deal. Of course, we now know that’s not true since Raab quit.
Anyhow, there was little follow-through buying, probably because of profit-taking ahead of Theresa May’s cabinet meeting.
The pound’s weakness would then intensify during Wednesday’s morning London session, thanks to Democratic Unionist Party (DUP) MP Jeffrey Donaldson’s comments during a BBC interview that:
“From what we have seen and heard we do not believe this deal is the best deal.”
“This deal has the potential to lead to the break-up of the United Kingdom and that is not something we can support.”
And to give y’all some context, Theresa May’s Conservative Party’s minority government needs the support of the DUP in order to approve the deal in Parliament. And what Donaldson is implying here is that the DUP won’t support the deal, which is bad news for Theresa May.
Anyhow, demand for the pound was revived thanks to this tweet from Christopher Hope, Chief Political Correspondent at The Daily Telegraph, since that seems to contradict Donaldson’s comments.
As at 11am today the DUP's MPs have not seen the deal, nor been briefed on it. Their best hope is to see it tomorrow morning, nearly two days after RTE first disclosed it. One MP says: "She [the PM] must take people for fools." #BrexitDeal
— Christopher Hope (@christopherhope) November 14, 2018
The pound’s price action then became choppy as rumors swirled about Theresa May’s cabinet meeting.
However, it was later announced that Theresa May’s cabinet supported the deal, which caused the pound to spurt higher.
There was little follow-through buying, though, and most pound pairs even encountered some bearish pressure, likely because of profit-taking.
GBP bulls finally began to regain their footing come Thursday. However, GBP bulls would be forced to flee when Thursday’s London session rolled around, since there were reports that the DUP were dismayed with Theresa May’s deal, as well as reports that Theresa May may have to face a leadership challenge.
However, what really cause the pound to tank super hard was Brexit Secretary Dominic Raab’s resignation since that cast doubt on the draft deal and also made market players question Theresa May’s leadership.
The pound would eventually find buyers again after Theresa May’s speech since her defiant and confident tone supposedly helped to reassure and calm the market, market analysts say. Of course, short-covering is also a likely reason.
At any rate, the pound would continue to sail higher on Friday, thanks to somewhat positive Brexit-related reports, namely Gove’s decision to stay with Theresa May, as well as the fact that a no confidence vote against Theresa May had yet to fully materialize.
However, sellers would return later (except on GBP/USD), probably because there were rumors flying about that the number of no confidence letters have already exceeded the required 48 to mount a leadership challenge against Theresa May.
This morning Steve Baker told ERG MPs that the number of letters was over 48. This information was leaked. A few hours ago he said the number was close to 48. Now he says we might have to wait until next week. Some operation.
— Adam Payne (@adampayne26) November 16, 2018