Uncertainty is usually bad. But with regards to the resignation of David Davis, market participants think it may actually be a good thing as far as the pound is concerned. The Brexit secretary resigned after the UK Prime Minister Theresa May forced through a new “soft Brexit” strategy she intends to present to the cabinet at Chequers.
Markets have calmed down since yesterday’s big risk asset selloff, but that doesn’t mean that there’s nothing exciting on the horizon for traders. Namely, tomorrow’s Bank of England meeting should provide some important insights into Mark Carney and company see policy unfolding moving forward.
The outlook for sterling remains tilted to the downside, especially when factoring in how Brexit-related uncertainty and political risk may force the Bank of England to delay monetary policy normalization this summer.
The pound has started the new week how it ended the last one: lower. It fell below the $1.34 handle for the first time since December earlier this morning before bouncing back slightly ahead of Brexit talks and publication of UK inflation data later in the week.
The U.S. currency is weaker against all major pairs as US tariffs targeting China were announced. The U.S. dollar was trading higher on Wednesday after the U.S. Federal Reserve hiked interest rates by 25 basis points as anticipated. Fed Chair Jerome Powell was neutral on his first press conference but the economic projections painted a strong U.S. economy.
WTI crude prices pulled back from a critical technical level after coming within a couple of ticks of the $62.58 per barrel high hit in May of 2015. Back then oil topped before a collapse in price as three bearish factors caused oil to fall. Fast forward to today. U.S. oil supply has been plunging at a record rate and should fall again for the 8th week in a row.