The Pound has been battered this week following a handful of stray comments on the likely outcome of UK’s collaboration with the EU. Whilst the primary losses were caused by comments from the international trade secretary Dr Liam Fox a series of Tory related backbiting and controversy has once again highlighted the party’s soft centre and markets have reacted accordingly. The pound touched its lowest point this year and struggling for support.
The Pound weakened significantly following comments that the most probable outcome for Brexit would be a no-deal scenario with the UK going it alone. The international trade secretary claimed that the changes were 60-40 in favour of no deal being reached, despite both parties wanting to reach an agreement.
The International trade secretary laid the blame firmly at the European Union’s door, in particular, the chief EU Brexit negotiator Michel Barnier. Commenting, Dr Fox said:
“We have set out the basis in which a deal can happen but if the EU decides that the theological obsession of the unelected is to take priority over the economic well-being of the people of Europe then it’s a bureaucrats’ Brexit – not a people’s Brexit – then there is only going to be one outcome.”
There has also been further turbulence caused within the Conservative party following comments from Boris Johnson which are divisive and distasteful. The ex-Foreign Secretary stated that Muslim women wearing burkas looked like ‘letterboxes’ or ‘bank robbers’.
His comments have sparked a number of complaints which are now being investigated by the Tory party and have been dubbed ‘inflammatory and divisive’ by the UK equalities watchdog.
However, despite the controversy caused voters apparently still support Boris Johnson, a recent ComRes poll on behalf of the Sunday Express indicating that 53% of respondents believe Johnson should go unpunished for his comments, whilst 60% of respondents now believe that free speech is under threat.
Since arriving back in the UK following a vacation Boris Johnson hasn’t offered a comment, It is however anticipated that he will reply in his weekly column.
Once again, the debacle leaving Theresa May unable to enforce the moral code within the party for fear of further fractions.
Adding another element to the melting pot which has become the Tory party is a group of pro remain conservatives which are prepared to block a no deal scenario which would see the UK crash out of the European Union.
A handful of conservative party members past and present who were willing to provide Prime Minster May with enough room to negotiate an appropriate departure are now becoming concerned and are looking to make their views more known that a no deal exit isn’t acceptable for Britain.
Speaking in UK Business Insider the former vice chairman of the conservative party Stephen Hammond stated that:
“However, they are also colleagues who are clear that if the outcome is a no deal, then they’ll make their view well-known that this isn’t acceptable for Britain”.
Continuing Hammond, the current MP for Wimbledon, said:
“No deal is not the default. That will not happen.”
Hammond is championing a deal where the UK would retain its access to the single market, a deal that is adopted by Norway. He believes faced with the real possibility his rationale would receive good support.
The controversy and comments indicating that the UK could be heading to a no-deal Brexit outcome were illustrated clearly in the Pound value this week. With key currency pairs such as the GBP – Eur and GBP-USD significantly devaluing.
Following Dr Liam Fox’s comments early last week GBP to EUR exchange rates fell progressively from 1.1224 to a low of 1.1080 marking the lowest point since October 2017. The pair has managed to recover slightly assisted by positive m/m UK manufacturing figures and on target preliminary GDP figures.
The Pound also fell to significant lows against the Dollar with GBP – USD touching 1.2726, however, unlike the final days of trading against the Euro the GBP-USD pair has struggled for notable price improvement and has been unable to break above 1.2771. Unsurprisingly the Pound has struggled against the juggernaut which is the US economy and despite lots of recent news about the US’ considerably mounting debt pile the US Dollar index rose by 0.68% on Friday before closing. Whilst the CPI figures remained on target reaching the forecast 0.2%, the figure being reflected by the US core CPI figures.
Many economists now believe the pound could weaken the closer the UK gets to a deadline, particularly if the conservative party continues to be so fractured. Further discussions of the UK preparing for a No-deal outcome would surely drive the GBP down further, historically August is a bad month for the pound, due to lack of activity. If the deadlock remains throughout September and the possibility of the UK leaving the EU without an agreement becomes the most likely the GBP could comfortably surpass the lows seen this week.
Featured image: © marcin jucha – stock.adobe.com