Pound stabilises above post-election lows, political uncertainty reigns supreme

After falling in reaction to the outcome of Thursday’s general election, the pound is beginning the week in a more stable position.

After falling in reaction to the outcome of Thursday’s general election, the pound is beginning the week in a more stable position.

The GBP/USD exchange rate is also likely to stumble on Wednesday, with the Federal Reserve expected to increase interest rates at its latest policy gathering.

When PM Theresa May called for a snap election back in April her campaign hinged on the promise of maintaining strength and stability during the UK’s Brexit negotiations.

However, it’s fairly safe to say that her ability to deliver on that promise is now in question, with Thursday’s vote leaving the nation more mired in uncertainty than ever.

The Conservatives succeeded in losing their majority, a result which is unlikely to strengthen Theresa May’s hand in exit talks.

May has so far resisted calls for her resignation but the prospect of a minority government backed by the DUP is currently failing to excite much confidence in the government’s ability to secure a good deal for Britain.

While the pound has now stabilised following Friday’s sell off, it remains at multi-week and multi-month lows against the major currencies.

Wise Money markets ahead

With no potentially exciting economic reports on the calendar for today, the fallout from last week’s vote will remain the main driver of GBP exchange rate movement.

If the outcome of the election leads to the pursuit of a ‘soft Brexit’ (where the UK retains access to the single market) the pound could ultimately benefit.

However, if it appears that those members of the Conservative party pushing for a complete severing of the UK’s relationship with the EU are more likely to get their way now that May has lost her majority, the pound could be headed for new lows over the next few weeks.

In light of everything that has happened/is happening, tomorrow’s UK inflation stats may prove less influential than usual.

That being said, the pound could come under further pressure if the rate of inflation eases.

Although the odds of the Bank of England (BoE) reconsidering its current stance on interest rates are minimal (especially in the face of such political uncertainty) easing consumer price pressures would certainly add to the argument in favour of keeping borrowing costs lower for longer.

The GBP/USD exchange rate is also likely to stumble on Wednesday, with the Federal Reserve expected to increase interest rates at its latest policy gathering.

 

 

 

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