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Pound Sterling Live: May Asked for Exit Timeline, Pound Under Pressure vs. Dollar but Supported vs. Struggling Euro

Brady 1922

Above: Chairman of the 1922 Committee, Sir Graham Brady. The committee want Prime Minister May to establish a clear timeline for her departure. File photo. © Pound Sterling Live

- 1922 committee want timeline for May's departure

- Pound "increasingly weary" of ongoing political paralysis

- Pound-to-Euro rate @ 1.1572

- Pound-to-Dollar rate @ 1.2906

The British Pound remains under pressure against a dominant U.S. Dollar, while broad-based weakness in the Euro is working to keep the Pound-to-Euro exchange rate supported in the mid 1.15s.

While the Euro and Dollar are dominant on Thursday we did see a bounce in the broader Sterling complex in mid-week trade after it was made clear an attempt to topple Prime Minister Theresa May had failed.

The move by the Pound reminds us that political headlines remain a key risk to the currency in the short-term.

The 1922 executive committee of backbench Conservative Party MPs voted by nine votes to seven to maintain current party rules that mean May cannot be challenged until December.

The committee did however call for May to provide greater clarity about when she will leave office.

Gains by Sterling on news of May's reprieve ultimately proved short-lived and we are told by a number of currency analysts that markets will remain nervous of holding Sterling amidst growing concerns that the ongoing Brexit impasse and delay are damaging the economy, we are told.

Commenting on the Pound's recent declines, Jane Foley, a strategist with Rabobank says, "the market is becoming increasingly weary of the Brexit process, the associated political wranglings in the UK and the damage that is being inflicted on the UK economy by the prolonged uncertainty."

A trend lower in Sterling, against both the Euro and U.S. Dollar has been observed since March, with April seeing the currency trend steadily lower despite the announcement of a lengthy delay to Brexit that will last until October 31.

In fact, over the course of the past month the Pound is down 1.65% against the Euro and 1.91% against the U.S. Dollar despite the threat of a 'no deal' Brexit being effectively neutralised.

Concerning the outlook for the Pound, Foley says, "in the absence of developments that increase the chances of a Brexit deal being passed by the UK parliament we see risk of GBP remaining on the back foot."

May is expected to try and retake the initiative on the Brexit process next week with media reports stating the Prime Minister will bring forward a vote on the Withdrawal and Implementation Bill.

As we mentioned in a previous article, the WAB is not the Withdrawal Agreement (May's Deal); rather it is legislation parliament must pass in order to ratify any Brexit deal. The WAB allows Brexit to be enacted, and should be voted through after the Withdrawal Agreement has successfully been ratified.

The aim of putting the WAB first is it potentially unlocks the door to the Brexit deal being voted through, and there appears little evidence that opponents across the House of Commons have shifted their stance.

"The Pound continues to be weighed by Brexit uncertainties, including ongoing cross-party talks and unrest within the Conservative Party. There are reports that the government may bring forward the Withdrawal Agreement Bill next week, although there is no guarantee that parliament will back it," says Hann-Ju Ho, an analyst with Lloyds Bank.

We see the potential for yet further humiliation of the government over coming weeks.

"GBP seems likely to remain under pressure given the significant political risks associated with the Brexit process and the 2 May local elections," says Quek Ser Leang at UOB in Singapore.

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We continue to await news of a the status of talks between the opposition Labour Party and the Conservatives.

While we see little chance of success, an unexpected agreement between the two parties is an outside risk that could well propel the Pound sharply higher.

An agreement between Labour and the Conservatives dramatically raises the chances of a Brexit deal being voted through, thereby putting an end to the chronic uncertainty that has kept the Pound, and UK business investment, under pressure.

Without a deal we are told the UK economy will continue to suffer depressed business investment levels that are more typically associated with economic recessions.

"The fact that a no-deal Brexit was avoided at the end of March may have been a relief to many investors. It was not, however, an optimal outcome," says Rabobank's Foley.

"Under the weight of political uncertainty, business investment fell in the UK in every quarter of last year. Such an outcome is highly unusual outside of a recession and, since political uncertainty has prevailed, the poor readings likely extended into Q1 2019," says Foley.

UK business investment quarter on quarter

Foley says the risk is that a delay to the Brexit outcome will extend this veil of uncertainty to the detriment of the UK economy going forward. Not only that.

"But there is little confidence that the delay to Brexit may yield anything other than an increasingly fractured and uneasy political system in the UK," says the analyst.

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