The Pound faces a hugely volatile week against the USD Dollar after the shock resignation of Brexit secretary David Davis last night. British politics will be the main theme for the Pound this week and the biggest driving force as the level of uncertainty over Brexit has rapidly increased. This all comes following the agreement that was reached on Friday in the cabinet meeting at Chequers, where Prime Minister Theresa May was able to find support for her “third way” which would ultimately result in a softer Brexit. The resignation clearly creates even more uncertainty in this tense negotiation between Britain and the EU and further resignations this week could see more volatility for the Pound.
It remains to be seen whether UK Prime Minister Theresa May will survive this latest test with the potential for a leadership challenge within the conservative party. It would appear that the resignation may force the prime Minister to change tact and look at alternative models.
The other consideration is that if the EU do not even accept the proposals that were agreed at Chequers then the prospect of a no deal scenario becomes more likely as does the possibility of another UK general election. Politicians from other parties have already made calls for an election following these latest developments and both scenarios carry considerable risk for Sterling exchange rates.
Rates for GBP USD picked up last week with levels moving from a near 8 month low of 1.31 to over 1.33 where levels currently sit providing buyers with a better window of opportunity. The trade wars do continue though after the US officially started collection tariffs on Chinese goods on Friday. China has retaliated with equal amounts whilst accusing President Donald Trump of launching the largest trade war in history. It highlights how serious this issue is and should there be any further escalation which in my view is likely, then there should me more volatility for Dollar exchange rates. Another round of new tariffs from the US could see the US Dollar make gains as investors flock to the safety of the Dollar.
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