CURRENCIES: Theresa May's Resignation Is Not Good News For British Pound, Say Analysts
May 24 2019 - 8:20AM
Dow Jones News
By Mark DeCambre, MarketWatch
The British pound strengthened broadly against its rivals on
Friday as U.K. Prime Minister Theresa May announced her
resignation, after her deals to usher Britain out of the European
Union failed and she lost the confidence of her political inner
circle
Sterling was trading at $1.2662 versus the dollar, compared with
$1.2657 late Thursday in New York, a gain of about 0.06%. Against
euro, sterling's gain was small. The shared currency was buying
GBP0.8836, versus GBP0.8831, according to FactSet data.
May's planned resignation -- she will stay on until a
replacement is found -- comes nearly three years after the U.K.
voted to leave the bloc back in late June.
The premier delivered an emotional resignation speech in front
of 10 Downing St "It is now clear to me that it is in the best
interest of the country for a new prime minister," she said. Her
decision puts in further turmoil Britain's exit plan, raising
questions about how quickly they can cobble together a government
in time to meet an Oct. 31 EU deadline or ask for an extension.
Former foreign secretary, Boris Johnson, and ex-Brexit secretary
Dominic Raab, are considered likely successors to May
(http://www.marketwatch.com/story/brexit-brief-the-contenders-to-replace-theresa-may-as-uk-prime-minister-2019-05-24),
only the second woman to be prime minister in the U.K. Another
woman, former House of Commons leader, Andrea Leadsom, could also
be in the running for the job.
Although the pound has found some level of buoyancy amid the
latest Brexit twist, the currency could face a challenges gaining
momentum against its rivals going forward.
"Uncertainty is elevated, and the British pound volatility
should grow. Since no-deal chances are increasing, we should see
sterling's rally capped," Edward Moya, senior market analyst at
Oanda, in a Friday research note.
The uncertainty also may make it difficult for the Bank of
England to raise rates as had been expected, and a rate reduction
may even become a possibility of a disorderly Brexit becomes more
likely, Moya said. "If we see a hard exit, rate cut bets will grow
rapidly and for now, the BOE will need to be on hold and wait until
we see the next leader's plan," he wrote.
Jordan Rochester, currency strategist at Nomura, in a Friday
note, said the latest development is not a boon for sterling. He
said gains now reflect an old market adage of "buy the rumor and
sell the fact," but is forecasting a weakening for the U.K.
unit:
"What we're witnessing now is 'buy the rumor, sell the fact'
profit taking that is for now boosting [pounds]. It will probably
end up being a gift for those who are considering fresh shorts," he
wrote.
However, "wait for the dust to settle, [the pound] to finish
higher today and then shorts will be more attractive as [pounds]
will likely be a continued grind lower towards its historical low.
A low that we're not that far from, once again," he said.
(END) Dow Jones Newswires
May 24, 2019 08:05 ET (12:05 GMT)
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