Pound Hit by Brexit Turmoil as Tariffs Kick In

Forextraders

The British pound was the most significant casualty of early forex exchange trading when markets opened on Monday, after turmoil in the country’s politics.

British Prime Minister Theresa May had spent Friday and the weekend promoting her “third way” approach to negotiating the terms of the country’s exit from the EU.

However, her Cabinet fell into political chaos late on Sunday evening after her key Brexit minister, Brexit Secretary David Davis, resigned from his post. Junior ministers also followed suit, meaning that May was left with weakened authority – as well as vacancies in her government to fill.

The move also led to renewed speculation around May’s political future, and for some analysts and journalists, it also increased the chances of another early general election, which would see May’s Conservative Party up against Labour, led by Jeremy Corbyn. As a result of the turmoil, the pound hovered around the 1.3300 major level when markets opened on Monday morning, and uncertainty is expected to last for the rest of the day.

Elsewhere on the forex markets, the impact of last week’s imposition of tariffs on goods traded between the USA and China has started to show.

On Monday, the US dollar dropped by around 0.1% against a host of six other important world currencies to 93.962. However, it was the release of disappointing information on the wages of American workers which contributed in large part to the dollar’s recent decline. The figures showed that average wages per hour in America rose by 0.2% in June, which was a whole percentage point down from the equivalent data for May. For traders, the worry is that this could reduce the chances of a further interest rate rise due to concerns over inflation levels.

Looking to the week ahead, there are several significant data releases coming up which forex market participants should watch out for. Last week’s US datasets left the dollar facing a difficult time on the trading floors, but this may change on Thursday following the publication of consumer price index data. As with the wage data from last week, this could again feed into market perceptions about how interest rate decisions across the next few months will play out – a key consideration for traders.

The economic calendar is also looking significant across the wider world. This week sees the Bank of Canada release its interest rate decision, which will likely have a significant impact on the Canadian dollar.

In Australia, meanwhile, the Westpac bank will release its consumer confidence data on Wednesday, while data on home loans and home investment lending levels will also be made public.

And although the focus for the British pound is likely to continue to revolve around Brexit for some time to come, economic data releases in the UK this week are also likely to contribute to the pound’s performance. Tuesday sees the release of a great deal of information, including industrial and manufacturing production data as well as trade balances and GDP information.

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