Sterling under pressure as cross-party talks collapse
By Michele Maatouk
Date: Friday 17 May 2019
(Sharecast News) - Sterling was under pressure on Friday, dropping below $1.28 for the first time since February as it emerged that Brexit talks between the government and the Labour party have collapsed, increasing the risk of the UK leaving the EU without a deal.
At 1055 BST, the pound was down 0.3% against the dollar at 1.2761 and 0.2% lower versus the euro at 1.1431 as Labour leader Jeremy Corbyn said talks between both sides "have gone as far as they can". In a letter to Prime Minister Theresa May, he said the discussions, which have gone on for six weeks, can no longer continue due to the government's "increasing weakness and instability".
Corbyn highlighted growing concern in both the shadow cabinet and parliamentary Labour Party about the government's ability to deliver on any compromise agreement.
"As you have been setting out your decision to stand down and cabinet ministers are competing to succeed you, the position of the government has become ever more unstable and its authority eroded," he said. "Not infrequently, proposals by your negotiating team have been publicly contradicted by statements from other members of the cabinet."
The Labour leader also reiterated the fact that his party will continue to oppose the government's deal, as it does not safeguards jobs, living standards or the manufacturing industry.
Sterling was knocked lower on Thursday as Prime Minister Theresa May agreed to set out the date of her departure in the first week of June after she makes one final attempt at getting her Brexit deal through parliament. Meanwhile, former Foreign Secretary and leading Brexiteer Boris Johnson confirmed he would run for the Tory Party leadership once May stood down
David Cheetham, chief market analyst at XTB, said GBP/USD is now on track to post a ninth loss in the past 10 trading days following a strong move higher at the start of the month, as political concerns weigh.
"Part of the drop in the pair can be attributed to strength in the buck, but the real story has been a clear move lower for sterling with all the major currencies appreciating versus the pound in the past week," he said.
"The cross-party talks themselves always had the feel of a charade that was unlikely to provide a breakthrough about them, with both sides keen to appear that they were working on a breakthrough but the fear of giving their main rivals a helping hand in times of trouble meaning that ultimately any tangible progress was unlikely."
Oanda analyst Craig Erlam said: "Once again precious weeks have been lost and it appears we're no closer to agreeing on the country's exit from the European Union. This uncertainty combined with the prospect of a more hardline Brexiteer - one of which has already thrown his hat into the ring - is unsettling sterling traders.
"We've gone from a situation in which a deal late in the day looked likely to one in which all options, up to and including no deal, may be back on the table."
Erlam said this does not bode well for the economic prospects and the currency may continue to suffer as these options become more plausible. He added that the break below $1.28 is a clear sign of the unease being felt, with 1.27 now the key level below.
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