The British pound is continuing to climb in today’s trading session after recovering on Friday following heavier losses earlier in the week, and depending on the events over the next few days, we may see the same situation.
There is speculation this week that some government members will gain the numbers to hold a secret ballot to remove the Prime Minister May and if they are successful, the sterling will take a sever hit as political instability exasperates the negative effects of Brexit.
“The pound is attempting to stage a tentative rebound following last week’s sharp Brexit related sell-off,” said Lee Hardman, an analyst at MUFG,
“At the moment no news is good news for the pound, yet it would quickly come back under downward pressure if a leadership challenge is called in the coming days.” He added.
Even if Theresa may holds onto the Prime Ministers position after a leadership challenge, the chances of her getting the current Brexit deal through parliament is dropping by the day and if the agreement is rejected the pound may be looking at falling to post Brexit lows.
“Given that the currency markets are the most liquid asset at investors’ disposal, shorting the pound could become the path of least resistance or, if you wish, the Brexit pressure valve, for many clients,” noted Valentin Marinov from Credit Agricole Bank.
“This could mean that the drop toward $1.20 may take less than a week.” He added.