With the UK election just weeks away, both major parties are scrambling for dominance as they hope to take the lead in the election and direct the countries future. As it stands, Article 50, the official triggering of the Brexit negotiations has taken place and both sides are split on how to handle the matter. The current Prime Minister, May, has adopted a stern approach to the negotiations, looking to play hard ball. She has stated that she will get the best possible deal for the UK or none at all, all while marginalizing Wales and Ireland, by not considering their views on how Brexit should be handled. On the other hand, the Labor party, has adopted a more inclusive stance, implying that they see a role for positive EU -UK relations in fostering the best deal, one that is accommodative for both parties and does not take an aggressive all or nothing stance.
To date, the GBP has dropped well over 20% since the Brexit vote last year but the GBP has managed to claw back from its lows as clarity enters the markets regarding the impact of Brexit, showing that the UK is more resilient than investors first considered, with the BOE looking to backtrack on its post Brexit rate cut, given solid growth and inflationary pressure.
Looking forward, the GBP will remain sensitive to news regarding the upcoming election and all economic releases form the country. Today’s speech by PM May will be analyzed by traders as they look for further clues regarding her stance on Brexit, should she strike positive tone, which markets interpret as good for the UK, we will see the GBP strengthen and vice versa should she strike a more negative tone. Regarding economic data, if the data show the country to be heating up with economic expansion on the horizon, traders will be quick to snap up the GBP in anticipation of the improved conditions, while worse than expected economic releases, that show the country to be cooling down, will see the GBP falter as bears renter to drive the currency lower.