Pound exchange rate under pressure as trade vote highlights divisions in Tory Party

Philip McHugh July 18th 2018 - 2 minute read

The pound fell back against the rest of the majors on Tuesday as a narrowly won vote over the government’s trade bill underlined the growing divisions within the UK government.

Sterling is looking a little studier this morning however, with GBP/EUR holding at €1.1255, while GBP/CAD edges up to C$1.7325 and both GBP/AUD and GBP/NZD advance, reaching AU$1.7794 and NZ$1.9381 respectively. However GBP/USD is still showing signs of weakness as it dips to $1.3083.

Looking forward, the pound could find some much needed relief today if UK inflation is shown to have jumped in June as expected…

What’s been happening?

The pound faced some initial selling pressure on Tuesday from the release of the UK’s latest labour report, with a dip in domestic wage growth slightly dampening hopes of an August rate hike from the Bank of England (BoE).

However the real sell-off of Sterling came later in the session with investors abandoning the currency in droves ahead of a vote on the government’s Brexit trade bill.

While the bill narrowly passed, the pound only enjoyed brief relief, with the vote highlighting the growing divisions within the Conservative Party and the difficulty Theresa May will face in wrangling a Brexit deal everyone can agree upon.

The GBP/EUR exchange rate struck a new four-week low on Tuesday as the euro took advantage of the weakness in the pound to push higher, although a lack of impactful data left the euro treading water against the rest of its peers.

Meanwhile the GBP/USD exchange rate neared an eight-month low yesterday as markets reacted positively to yesterday’s testimony by Federal Reserve Chair Jerome Powell.

In his comments in front of the Senate Banking Committee, Powell reinforced his view that the US economy is going from strength to strength and consequently that rates should continue to gradually rise.

What’s coming up?

Looking ahead, the pound may be able to mount a recovery today following the release of the UK’s latest CPI figures.

Economists forecast the data will reveal inflation jumped from 2.4% to 2.6% in June, potentially reviving Sterling sentiment on hopes it will bolster the case for the Bank of England (BoE) to raise interest rates in August.

The Eurozone will also release its latest inflation figures this morning, with the euro potentially strengthening if the bloc’s inflation rate is confirmed to have risen in line with initial estimates.

Finally the US dollar may continue to tick higher today as markets await day two of Powell’ testimony.

Written by
Philip McHugh

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