The pound paired with the dollar ended the trading week at five-month lows, that is, at around 1.2713. Taking into account the dynamics of the downward movement, the bears could easily renew the annual low, but they were forced to suspend their triumphal two-week procession due to the onset of the weekend. However, on Monday, the downward impulse of GBP/USD can get its continuation, since almost all the fundamental factors play against the British currency. “The shadow of Boris Johnson” again loomed on Britain’s political horizon, and this fact weighed down the British currency throughout the market. However, first things first.
Last week, it finally became clear that negotiations between Labour and Theresa May’s government have failed. Although this has been mentioned before (mainly at the level of rumors), it was officially announced on Friday. Political opponents removed the masks of friendliness and again voiced a barrage of criticism, accusing each other of sabotaging the negotiation process and lobbying for anti-state ideas.
It is worth noting that many experts (or rather, the majority) were initially quite skeptical over the negotiations between Laborites and Theresa May. After all, May sat at the negotiating table with political opponents, in fact, forced – only to justify the need for further delaying Brexit. But while these negotiations were going on, GBP/USD traders had at least some foothold in this regard, especially against the background of rumors about reaching a certain compromise. Therefore, despite the multi-week silence of the parties, the pound-dollar pair either did not fall below 1.3000, or very quickly returned from the area of 28-29 figures. But as soon as the negotiators put an end to possible cooperation, the pair rolled down – and will continue to roll, to the low of 1.2450, until the market sees “the light at the end of the tunnel” regarding the prospects of the “divorce process” with the EU.
To date, these prospects look too vague. Theresa May once again drove herself into a corner: on the one hand, she announced a vote for the draft deal, but on the other hand, she lost potential allies (Labour) and did not meet the Conservatives who demanded new negotiations with the EU. As a result, the current situation is almost the same as it was back in January or December, when May submitted the deal to a vote without having made sure that the required number of votes was available. “Slamming the door” in front of the Laborites, Teresa May was left alone with the Conservatives, who, first of all, were not eager to support her draft deal, and secondly, they did not have their own majority — the support of unionists is necessary for a positive vote.
In other words, Theresa May is in full swing to another failed vote (the fourth in a row), after which her tenure as prime minister will become politically meaningless. According to the British press, May nevertheless agreed to resign before the beginning of the Parliamentary recess (which starts in July), but after voting for the deal (to be held from June 3 to 9). According to journalists, this ended the Tory negotiations at a closed meeting of the “1922 Committee”. Moreover, insider sources claim that May’s resignation will still happen regardless of the vote’s results.
In other words, the issue regarding the current prime minister’s resignation is considered by many to be already resolved, and now Brexit prospects depend on who will stand at the helm of Britain after May. The press has already named the possible successors to May – these are Jeremy Hunt (the current foreign minister), Michael Gove (the environment minister) and David Lidington (the head of the government’s secretariat). All of them have a rather soft position in the context of further relations with Brussels, so their appointment will be positively perceived by the British currency. But a possible victory for Boris Johnson, who is also a favorite of the political race, will be an unpleasant surprise for GBP/USD traders. He is the most zealous and consistent supporter of a hard Brexit, and is also May’s opponent at the same time. This is the most undesirable candidate for supporters of maintaining close business contacts with the European Union, so his arrival will have a strong downward pressure on the pound.
Here it is worth noting that, according to a YouGov study conducted for The Times, Boris Johnson is seen by 39% of the members of the Conservative Party as the new head of the British government. The former head of the British Foreign Ministry is 13% ahead of the former minister of exit of Britain from the EU, Dominic Raab.
Thus, the pound is now not only under the pressure of weak prospects for the June vote, but also under the mercy of further prospects for the “divorce process.” Many politicians and financial analysts associate Johnson’s arrival with a hard Brexit – and until he himself denies this “logical” relationship, the sterling will continue to fall in price: the nearest, strongest, support level of GBP/USD is only around 1.2450 Bollinger Bands indicator on the monthly chart).
The material has been provided by InstaForex Company – www.instaforex.com