Monthly Wrap: GBP – Pound plunges as MPs push back against May’s Brexit deal

Key takeaways:
 

• Political jitters shake pound as support for Brexit deal fails to materialise
• Threat of leadership challenge or general election to keep pound under pressure
• GBP Monthly lows: €1.11, $1.27, AU$1.75, C$1.66, NZ$1.87
• GBP Monthly highs: €1.15, $1.32, AU$1.85, C$1.72, NZ$2.00

 
Brexit developments have provoked significant volatility for the pound over the course of the last month as UK political tensions mount.
 
Although the UK and EU were able to finally reach an agreement, the initial boost to GBP exchange rates ultimately proved limited.
 
The progress made in agreeing the deal was quickly reversed as MPs failed to throw their support behind the proposal, suggesting that Theresa May will struggle to push the deal through Parliament.
 
Confidence in the pound weakened further after Brexit secretary Dominic Raab resigned over the agreement, dealing a fresh blow to May’s support base.
 
With some MPs calling for a vote of no confidence, the political risks escalated sharply, raising the prospect of a Conservative leadership challenge or even a general election.
 
Domestic data failed to offer particular encouragement to the pound, meanwhile, as retail sales saw a surprise contraction on the month in October.
 
As both August and September’s monthly gross domestic product readings showed stagnation, this further undermined confidence in the outlook of the UK economy.
 
Looking ahead, GBP exchange rates are likely to remain under pressure as a result of Brexit-based jitters and political worries.
 
Unless markets see the odds of a no-deal Brexit diminish, the incentive to buy into the pound is likely to remain generally muted.
 
Without a greater sense of domestic political stability further GBP weakness appears inevitable.
 
A fresh decline in the GfK consumer confidence index may add to the bearish mood of the pound as weaker consumer sentiment is likely to translate into lower spending and growth.
 
If October’s public sector net borrowing data points towards a narrowing of the budget deficit, however, this could offer GBP exchange rates a rallying point.
 
Any signs of resilience within the UK economy are likely to encourage the pound to recover at least some of its recent losses.
 
On the other hand, further signs of a slowdown in November’s round of UK PMIs could see GBP exchange rates extending their recent downtrend as markets brace for further economic weakness.