Crunch time for pound on Thursday

21 June, 2018

The British pound has slumped to the lowest level this year against its US counterpart as political instability grips the UK which may lead to the collapse of the government.

The Lords once again defied the government and voted for a Brexit Bill that would give parliament the chance to vote on the final deal between the EU and the UK regarding the break up.

The UK is known to have one of the most stable political systems in the world, so with the current situation, investors are becoming nervous and dumping the pound.

“Political risks continue to haunt sterling,” said Valentin Marinov, head of Group of 10 currency strategy at Credit Agricole SA.

The “vote in the House of Commons on the EU withdrawal bill amendment could become the focal point of market anxiety and fears about the British political outlook on the road to Brexit.” He added.

Prime minister Theresa May’s government is now on the back footing and will be forced to negotiate with ministers who disapproved of her Brexit plans, and failure to do so may see the end of her political career.

“Theresa May showing signs of weakness and an inability to control her party wouldn’t bode well for the future as several other pieces of legislation are still needed in order to prepare for Brexit.” said Jasper Lawler, head of research at London Capital Group.

“This will not only test May’s ability to steer a minority government, but also the pounds buoyancy as pro-EU rebels promise they can collapse the government if their demands aren’t met,” he added.

This Thursday’s interest rate decision from the Bank of England should bring no surprises with the majority of analysts predicting that the central bank will keep rates on hold.

It is the following monetary statement that investors will pay attention to as the BOE outlines their monetary policy for the rest of the year, and if there are no signs of any rate rises as the year unfolds the pound is expected to see further losses.

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