“The GBP/USD has been in a downtrend since April for the most part on increasing doubts that the UK and EU will come to an agreement on how to proceed with Brexit as key dates in the process draw near.”
“The GBP capitulated in early-August as PM May’s ‘Chequer’s Plan’, released on 9-July, fanned the flames of division in the Tory Party over how to proceed. Several members of PM May’s cabinet resigned and raised the spectre of a leadership challenge.”
“Recent UK economic reports have supported the GBP, including stronger than expected GDP and labour market reports in July. As the BoE pointed out today, underlying wage pressure has lifted to around 3.0%y/y.”
“However, there has not been any significant increase in UK rate hike expectations, certainly not as much as in the US in recent days, which sit at new cyclical highs.”
“The fortunes of the GBP hinge almost entirely on progress towards Brexit. A fear is that businesses are now acting on their contingency plans simply because time is now too short to wait to see if the UK parliament to hold together and agree on a deal with the EU. In which case we may see weaker economic reports and business confidence in coming months, especially if the UK parliament appears to remain hopelessly divided.”
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