Pound exchange rates nosedive as Cabinet resignations sow Brexit chaos

The pound plunged on Thursday, registering major losses against all of its major peers as two high profile Cabinet resignations rocked confidence in Sterling.

Sterling is showing signs of life again this morning however, with GBP/EUR steady at €1.1287, GBP/USD climbing to $1.2824 and GBP/CAD edging up to C$1.6868, while GBP/AUD and GBP/NZD rally to AU$1.7618 and NZ$1.8806 respectively.

Looking ahead, there remains a high risk of GBP volatility today as Brexit uncertainty continues to dominate the UK currency.

What’s been happening?                       
                               
After stabilising on Wednesday following the announcement that Theresa May has secured the backing of her inner circle for a draft Brexit deal, the pound collapsed on Thursday as the resignations of two high profile Cabinet members rocked confidence in both the deal and May’s leadership.

Both Brexit Secretary Dominic Raab and Work and Pensions Secretary Esther McVey resigned in protest yesterday morning, helping to drive the initial sell-off in GBP.

Sterling sentiment was then further knocked by the news that prominent Brexiteer, Jacob Rees-Mogg had begun proceedings to trigger a vote of no-confidence in May, with analysts confident he would garner enough support to challenge the PM.

This weakness in the pound saw the GBP/EUR exchange rate slump as much as 1.5% in trade on Thursday, with the euro advancing as the Brexit chaos helped to divert attention away from Italy’s ongoing budget dispute with the EU.

Meanwhile heaping further pressure on the GBP/USD exchange rate yesterday was the publication of the latest US retail sales as a stronger-than-expected rebound in sales growth helped to strengthen the US dollar.

What’s coming up?

While the pound shows signs of stabilising this morning, markets are likely to remain wary of the currency as they brace for more volatility.

Of particular concern is the possible resignation of more Cabinet members, with rumours swirling that Environment Secretary Michal Gove is weighing up his options.

Meanwhile EUR investors will be focused on a speech by Mario Draghi as they look for any hints that the recent slowdown in Eurozone growth will have impacted the European Central Bank’s (ECB) President’s policy outlook.

Finally the US dollar may look to extend its gains this afternoon if US industrial production is shown to have risen in October as some analysts suspect.