- GBP/USD is closing in on an important support level on a toxic combination of politics and a ticking Brexit clock.
- This week’s UK economic data may give the British Pound some support in the short-term.
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GBP/USD fell in early European trade Monday after weekend reports that 40 Conservative MPs were ready to sign a letter of no confidence in UK PM Theresa May, weakening her grip on power further. Under Conservative Party rules, if 48 MPs put their signatures to a letter of no confidence to the backbench 1922 Committee, it would trigger a fresh leadership election. The market is also concerned that if this happened, the Labour party may agitate for another general election with the city-unfriendly party currently likely to gain power.
The threat to the PM came on the same weekend that hardline Brexiters Foreign Secretary Boris Johnson and Environmental Secretary Michael Gove wrote a letter to Ms. May urging her to make sure that any transition period ended on June 30, 2021. The leaked letter added that current preparations “are not proceeding with anything like sufficient energy” and that May should push the “agenda forward with confidence.”
The current state of play of the Brexit talks will also be causing the government concerns, especially after last week’s meeting when EU negotiator Michel Barnier gave the UK two weeks to clarify its position on the Brexit bill if it wanted to begin talks on trade and transition in December.
GBP/USD slipped as European trade started Monday, falling nearly one cent to just above the 1.30400 support level, the recent November 3 low. A break below here leaves 1.30000 vulnerable. DailyFX market analyst Paul Robinson looked at GBP/USD volatility and price ranges in his latest technical update here.
Chart: GBP/USD Daily Timeframe (October 30 – November 13, 2017)
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This week batch of data releases may offer sterling some support with inflation expected to creep above the 3% level, prompting Bank of England governor Mark Carney to write a letter to the Chancellor spelling out why inflation is one percent above the target rate of 2% and what the central bank is doing to correct it. While the Bank of England is highly unlikely to talk about additional monetary tightening – raising interest rates again – the central bank will have to make sure that a lid is kept on inflation. Governor Carney and various other MPC members will be speaking at events this week and traders will parse their comments carefully.
--- Written by Nick Cawley, Analyst
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