Investors are likely to remain extremely wary of holding onto the Pound this week due to ongoing political uncertainty in the United Kingdom.
The sudden resignations of Foreign Secretary Boris Johnson on Monday and Brexit Secretary David Davis less than 24 hours earlier initially triggered concerns over greater political in instability in Westminster. Although fears seem to have somewhat faded today over Prime Minister Theresa May facing a leadership challenge after losing two key cabinet ministers, the Pound remains vulnerable to downside risks. An unanswered question lingering on the minds of many investors is whether Brussels will accept Theresa May’s new customs plan during the new round of negotiations scheduled for next week.
Market anxiety created from heightened political risk and ongoing Brexit uncertainty continues to be reflected in the Pound’s depressed price action. The fact that the currency struggled to find any support from the positive GDP figures, which rose 0.3% in May, continues to reflect how investors are more concerned with domestic political developments. Although expectations remain elevated over the Bank of England raising UK interest rates in August, political drama at home coupled with Brexit-related uncertainty could throw a spanner into the works. Such a scenario may result in the central bank leaving rates unchanged and ultimately, further damage buying sentiment towards the Pound.
Regarding the technical picture, the GBP/USD remains under pressure on the daily charts. Although prices have punched above the 1.3290 lower highs the bulls seem to be running out of steam, with the GBP/USD trading around 1.3254 as of writing. A solid daily close below the 1.3250 level could encourage a decline towards 1.3190 and 1.3130, respectively. Alternatively, prices need to break above 1.3358 to open a path to 1.3454.
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