Pound Sterling Live: May Tipped to Quit Friday

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- Snapshot: GBP/EUR: 1.1364 +0.11% | GBP/USD: 1.2629 -0.27%

- Reports suggest May to step down ahead of weekend

- Publication of May's 'new deal' delayed after backlash

- Euro hit by disappointing economic statistics

- Lloyds forecasting further losses for GBP vs. USD and EUR

Reports out Thursday suggest Prime Minister Theresa May will quit office on Friday May 24.

The exit of the Prime Minister has been the subject of feverish Westminster speculation over the past 24 hours, and has coincided with another extension lower in the value of the British Pound.

It is believed the withdrawal of support by her Cabinet and overwhelming evidence her next attempt at sealing a Brexit deal will fail leaves the Prime Minister with little room left to manoeuvre.

"Theresa May is expected to announce her departure from No 10 tomorrow after a cabinet mutiny over her Brexit plan," reports Francis Elliot, Political Editor at The Times. "May was finally cornered after cabinet ministers joined the Tory revolt over her offer to facilitate the option of a second referendum."

The government does however still plan to publish the legislation to enact Prime Minister Theresa May's Brexit deal in the week beginning June 03, government whip Mark Spencer said on Thursday, suggesting the Prime Minister is pushing forward with her job.

The Withdrawal Agreement Bill was supposed to be tabled into Parliamentary business today and the delay means one of two things: 1) May is preparing to step down in line with reports, or 2) she is looking to make yet further changes to the Brexit deal and try and bring colleagues back on side.

At a regular press briefing, May's spokesperson told media that May is focussed on delivering Brexit and is "listening to colleagues' concerns" over her latest deal. She also looking forward to meeting U.S. President Donald Trump in June.

The political flux is creating a space for further selling pressure to press down on the Pound.

The Pound-to-Euro exchange rate trades at 1.1320 at the time of writing, a chunky 0.23% lower than where it opened the day. The exchange rate had however been lower on Wednesday as it became clear a sizeable rebellion to May's latest Brexit deal was growing.

The Pound-to-Dollar exchange rate trades at 1.2610, down 0.42% on the day's opening level, and further losses are likely we are told.

"The British pound remains under pressure amid ongoing domestic political uncertainty, with Andrea Leadsom the latest minister to resign from the government last night. GBPUSD and GBP/EUR are heading towards 1.26 and 1.13 respectively," says Hann-Ju Ho, an analyst with Lloyds Bank.

It appears that a catalyst for any impending resignation by May is the resignation of Leader of the House of Commons Andrea Leadsom who last night quit the cabinet, saying she no longer believes the government's approach will deliver Brexit.

Crucially, it is Leadsom who takes the Government's business to parliament.

"I cannot fulfil my duty as Leader of the House... to announce a Bill with elements that I fundamentally oppose," says Leadsom.

It appears May's concession to the Labour Party of a 'confirmatory vote' on the deal - in effect a second referendum, crystallised Leadsom's decision.

"May clings on until Friday as GBP goes down a well trodden path. Highly unlikely that May will be able to stay on; the Conservative Party have to make the leadership contest seamless to save face. Rhetoric of more Eurosceptic replacements key for the Pound in next 2-months," says Simon Harvey, an analyst with Monex Europe.

We have however heard from a number of analysts that the departure of May could in fact be a good outcome for Sterling, something that could snap the currencies notable losing streak.

"It's getting personal as Theresa May is raising the combative spirit and yet she's the major element of uncertainty for GBP. Therefore, we think a new leader could break down barriers while breathing life into the pound for a short time," says Marc-André Fongern, G10 strategist with MAF Global Forex.

Currencies dislike political uncertainty, and the lifting of any degree of uncertainty is typically met with relief.

Currency strategist Viraj Patel at Arkera said there was evidence that the recovery in the value of Sterling from its multi-month lows over the course of Wednesday was in part due to rumours that the Prime Minister would stand aside that night.

"In the midst of chaos, there is also opportunity. Very much applicable to GBP markets right now. Pound trading with large degree of political risk premium. GBP typically bounces back once eye of the Westminster storm passes," says Arkera's Patel.

For Sterling, the downtrend is now firmly entrenched and, from a technical perspective, would be expected to continue.

However, markets are unpredictable and some would say to be wary of a recovery.

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Euro Hit by Disappointing Economic Statistics

The Pound-to-Euro exchange rate was offered a lifeline from its one-way ticket lower Thursday after the latest economic indicators out of the Eurozone economy disappointed while markets braced for the outcome of European parliament elections that are now running until Sunday..

The Euro was softer against most major currencies after both Eurozone manufacturing and services PMI survey results surprised on the downside Thursday, prompting economists to claim growth likely slowed during the second-quarter of the year.

The Eurozone manufacturing PMI fell from 47.9 to 47.7 in May when consensus was for an increase to 48.2. The services PMI also disappointed the market when it fell from 52.8 to 52.5, as markets were looking for 53.0.

Declines were aided falls in both PMI surveys for Germany, the Eurozone's largest economy, which saw an industrial recession deepen and the expansion in a previously-robust services sector cool during the current month.

"The details are generally depressing reading. Growth in new orders and output remains overall subdued, which has dragged employment growth down to a three-year low. Adding insult to injury, firms’ outlook for the future weakened to a four-and-a-half year low, and selling prices are contained by competition. The upshot is that the hard data have so far been much better than this overall sombre message, but we suspect that the Q2 numbers will come in more closely with the surveys," says Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics.

The Euro appears to be tracking the disappointing performance of the economy, particularly against the Dollar.

"EUR/USD correlations with relative rates/yields have broken down and it's all about growth now. Where is Eurozone GDP growth heading?" asks Kit Juckes, foreign exchange strategist with Société Générale. "The consensus today looks for 2019 US GDP growth of 2.6%, as recession fears ae pushed further into the future. The 2020 consensus is a reasonably robust 1.9%. the Eurozone 2019 consensus by contrast has fallen to 1.2%, from 2% a year ago and the 2020 consensus has fallen from 1.8% at the start of last year to 1.4% now."

Economic momentum understandaly rests with the Dollar.

Importantly, because the EUR/USD is the headline Euro pair, what happens here tends to impact other Euro exchagne rates. Therefore a softer EUR/USD would likely also offer Sterling some respite by weighing on EUR/GBP.

Time to move your money? Get 3-5% more currency than your bank would offer by using the services of foreign exchange specialists at RationalFX. A specialist broker can deliver you an exchange rate closer to the real market rate, thereby saving you substantial quantities of currency. Find out more here.

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