Thursday the major story for currency traders was the plunge in the value of the British pound against its major rivals, such as the euro and the US dollar (USD).
The United Kingdom (UK) reported the third-slowest gross domestic product (GDP) in Europe (EU) from the period beginning in July and going through to September 2017.
This is in comparison to the same period of time of the year before in 2016. Since the EU B. referendum in 2016, the pound has decreased five percent against the USD and twelve percent against the euro. The situation is making the UK Prime Minister Theresa May fall further into turmoil over the plan.
Resignations from May’s cabinet began less than twenty-four hours after she announced the plan’s backing by the cabinet. These new resignations also included B. Secretary Dominic Raab. In addition, traders and investors alike questioned whether or not she would step down amid letters calling for a vote of no confidence. However, May said she was adhering to her policy in a public speech, saying she was going to see B. through to the end.
The pound dropped to a two-week session low of $1.2723 on Thursday compared to $1.2991 late the day before in New York. The drop in value follows a volatile period for sterling after May’s announcement Wednesday that she had secured her cabinet’s approval for the B. plan.
Her policy would put into motion the execution of the referendum exit British voters approved back in June 2016. According to Dow Jones Market Data, Thursday morning saw the price of sterling fall to the currency’s worst drop since October 2016 to $1.2737. Meanwhile, the euro managed to rally back, rising significantly higher against the pound.
As May spoke to Parliament on Thursday to explain her B. plan, she was met with laughter. Audible jeers could be heard immediately following her judgment that Britain’s exit at the deadline on March 29 would be managed in a smooth and orderly fashion. Nonetheless, the resignation of May’s top B. aide was a big blow according to both market participants and currency strategists.
They are furthered concerned with how many ministers will be wondering, after seeing this news, if it better to wait it out or resign now. This leaves a most difficult road ahead for the Prime Minister.
Failing to secure an agreement now could end up resulting in what’s being referred to as a hard Brexit. This would mean that no deals are in place for governing the relationship between the UK and the bloc. However, a key goal among supporters of Brexit, the tentative idea would end the labor free movement, as agreed to by the cabinet.
Furthermore, some critics feel that the deal ultimately fails to sufficiently deliver on Brexit, including some within the May’s own Conservative Party who are hard-line Brexiteers.
Since the Conservatives lack the majority vote in the House of Commons, the Prime Minister’s government has to rely upon the support of what has generally been described as a “poor deal” by the BBC, the Democratic Unionist Party of Northern Ireland.
Since the referendum vote two years ago, both those leaving and those staying have begun to agree that the data has been disappointing concerning Brexit. The current situation has caused the uncertainty to reach new heights.
In addition, investors’ views of the country’s economic potential have been reflected in stock market performance. May’s work is cut out for her as she goes forward with exiting the UK.