GBP/USD Forecast: Failure to approve Brexit deal in UK parliament may see Sterling test 1.2100

Pensions Secretary Esther McVey and Brexit secretary, Dominic Raab left the UK Cabinet leaving Theresa May’s government into turmoil.
Arch Brexiteer Jacob Rees-Mogg submitted a letter of no-confidence seeking the ousting of Prime Minister Theresa May.
May spoke in the UKJ parliament seeking the support for the freshly designed Brexit agreement while EU summit is planned for November 25.
Failure to find support for the Brexit deal risks Sterling falling to 1.2100, the low from March 2017 when the correction from post-Brexit slump started.

Mario Blascak, PhD Independent Analyst

Sterling is hammered lower on Thursday after the Brexit agreement proposal found a tough opposition in both the UK parliament with the UK Cabinet dismantling as Pensions Secretary McVey and Brexit Secretary Raab both stepped down.

“Today, I have resigned as Brexit Secretary. I cannot in good conscience support the terms proposed for our deal with the EU,” Dominic Raab said on Thursday morning indicating that there is an ongoing dispute within the UK Cabinet about the Brexit deal.

Later on Thursday, the pensions Secretary Esther McVey joined Raab in resignation and after the UK Prime Minister May spoke to members of parliament the ultra-conservative party member Jacob Rees-Mogg submitted a letter seeking no-confidence vote for Theresa May.

The negative market sentiment in the epicenter of Brexit news combined with thin market liquidity and resulted in a massive Sterling’s depreciation towards 1.2770 with further scope for depreciation should the UK parliament fail to approve the Brexit deal or Theresa May’s government fall prey of ultra conservatives and face a new leader election.

The GBP/USD currency pair continues to build a base just below the downward sloping trend on a daily chart. The daily swings are massive over the course of last three days with daily ups and downs framed by 1.2750 on the downside and 1.3070 on the upside while the currency pair settled below 1.2800s. The risk of failing to approve the Brexit deal or Theresa May’s government collapsing is weighing on GBP/USD. Should the uncertainty build up further the GBP/USD is likely to test the cyclical low of 1.2662 and after falling past this level the territory opens for a test of 1.2100 March 2017 low and the cyclical pivot point of Sterling’s appreciation after Brexit related slump. On the other hand, approving Brexit agreement will support Sterling towards 1.3060 and 1.3340 further up.

GBP/USD daily chart

Author

Mario Blascak, PhD

Independent Analyst

Dr. Mário Bla&scaron;čák worked in professional finance and banking for 15 years before moving to journalism. While working for Austrian and German banks, he specialized in covering markets and macroeconomics.

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