As Brexit Woes Continue, Trading Sterling Is Painful

With Prime Minister Theresa May set to resign in June, further political and Brexit uncertainty continues to plague the foreign exchange market. Pounds sterling faces more losses and could see record lows before the year is out, according to FX analysts.&

Political Risk

Lukman Otunuga, research analyst at FXTM, explained the political risk circus in Westminster regarding who will take over from UK PM May and what this means to Brexit has worsened matters for the pound with prices falling below $1.26 on Thursday for the first time since the ‘flash crash’ in early January.

“Uncertainty is set to be the name of the game when it comes to the British Pound and Brexit as the clock slowly ticks, meaning Sterling weakness is poised to remain an ongoing theme as we head into the final trading month of Q2,” said Otunuga.

One matter investors need to seriously bear in mind following confirmation on who the replacement of May will be, will the new PM have enough time to flesh out a deal on Brexit.

“This might appear as an unlikely scenario for today’s fast-moving environment around Westminster but should the UK be forced to ask for another extension to the current October 31 deadline, this could be rejected by the EU and by all means encourage investors to price a no-deal Brexit into reality. The Pound can weaken by at least 5 percent if uncertainty over this potential scenario plays out,” said Otunuga.

Further Weakness

According to Capital Economics senior economics analyst Jonas Goltermann, the currency has fallen substantially against the U.S. dollar.

The analysts expects sterling to continue to struggle and end the year lower.

“The upshot is that we continue to forecast further weakness in sterling against the US dollar. If an orderly Brexit is agreed in late October, we project that the exchange rate will end this year at $1.25. And in the less likely event of a no-deal Brexit, we suspect that it would plunge to $1.15.” Goltermann wrote in a research note.

Related Links:

Infographic: Boris Johnson Emerges As Favorite For UK PM

UK PM Theresa May To Step Down After Brexit Logjam, Says Post Was 'Honor Of My Life'