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Brexit Concerns Add to GBP Weakness Ahead of UK/EU Talks

Brexit Concerns Add to GBP Weakness Ahead of UK/EU Talks

2018-05-02 10:45:00
Martin Essex, MSTA, Analyst
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GBPUSD talking points:

- As the UK markets reacted to weak economic data, sending GBP sharply lower, Brexit seemed to have receded as a market-moving factor.

- However, that now seems to be changing, with Brexit concerns re-emerging as an issue and likely to keep the currency under downward pressure.

Check out the IG Client Sentiment data to help you trade profitably.

And for a longer-term outlook take a look at our Q2 forecast for GBP.

Brexit fears re-emerge

For a while now, Sterling traders have been concentrating on weak UK economic data and what they mean for UK interest rates. However, signs are emerging that Brexit is rising up the agenda, potentially adding to the downward pressure on GBP.

The next round of Brexit negotiations between the EU and the UK begins this week and the talks are expected to be fraught. For GBP, the timing could hardly be worse, given the recent steep falls in the currency.

GBPUSD Price Chart, Daily Timeframe (Year to Date)

Latest GBPUSD price chart.

Chart by IG

For the UK, the negotiations are restarting at a particularly bad time. Tuesday’s UK purchasing managers’ index for the manufacturing sector showed a much larger than expected fall in April, suggesting that economic weakness continued into the second quarter of the year. A lack of overseas demand for UK goods due to Brexit concerns may have been a factor.

In addition, UK Prime Minister Theresa May is facing continuing problems at home. The idea of a “customs partnership” with the EU after Brexit has prompted fury among many Members of Parliament from her ruling Conservative Party. The House of Lords has defeated the Government, demanding that Parliament has a decisive say on Brexit. And local elections in the UK this week are expected to see gains by the opposition Labour Party.

While GBPUSD is steadier Wednesday, there seems little to stop it reaching the 2018 low at 1.3458 touched on January 11.

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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