Sterling slips below $1.20 ahead of Theresa May’s Brexit speech

Sterling slips below $1.20 ahead of Theresa May’s Brexit speech. The British pound fell sharply against the dollar during Asia session ahead of a key speech by UK Prime Minister Theresa May in which many investors believe she could spell out an end to her country’s participation in European Union’s single market.

16 January, AtoZForex – The currency declined 1.6% against the dollar to $1.199. The pound dropped 1% last week after May repeated earlier indications that she was looking to push for a ‘hard Brexit ‘ from the EU, which Britain voted to leave last June. May is expected to elaborate on the UK’s negotiation priorities in a speech on Tuesday. Several British newspapers reported that May will emphasize that the UK will leave the EU’s single market to regain control of immigration policy.

The UK economy has recently beaten expectations. But many investors believe that leaving the single market would hit British trade with the EU, its biggest trading partner. “The sterling exchange rate moves every time May puts continued access to the single market into question by insisting on immigration controls,” said analysts at Citigroup in a research note. “We would expect May to take a hard line on Tuesday,” they added.

Last week German Chancellor Angela Merkel reiterated that full access to the single market would require the UK to adhere to the free movement of goods, services, capital and people. The pound has moved sharply on political developments since last year’s Brexit vote, falling by more than 18% against the dollar in total. Investors are still pessimistic about the currency, with 65,831 more short than long contracts on sterling recorded by the U.S. Commodity Futures Trading Commission in the week to Jan. 10. Investors use short contracts to bet on a currency’s decline.

Sterling slips below $1.20: GBPUSD technical outlook

Sterling slips below $1.20 ahead of Theresa May’s Brexit speech GBPUSD Daily Outlook (click to zoom)

The technical outlook for the cable is still playing within the context of our previous piece GBP Vulnerable: Caught between the rock and the hard place. As long as the political risks still persist, GBPUSD should still be under pressure as the daily outlook still suggests, we could have a push through the 1.2000 psychological level to 1.19-1.1880 in days ahead, on the upside, 1.2150 should cap any significant rally.

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