Pound-to-Dollar Rate Breaks through October Lows, Eyes further Losses says Commerzbank

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- GBP breaks beneath October low against USD.

- Exchange rate now vulnerable to further losses.

- PM May emerges from 1922 Committee unscathed.

The Pound-to-Dollar rate has set a new October low and is on course for more losses over coming days, according to Commerzbank.

The pair fell beneath its previous nadir of 1.2922 on Wednesday as Brexit headlines and Dollar-strength forced the exchange rate lower.

The break now opens the door for a move down to the September lows at 1.2788, according to technical analysis from Commerzbank. 

Above: Pound-to-Dollar rate shown at daily intervals.

"The move below 1.2905 has introduced scope for a slide back to the 78.6% retracement at 1.2798/85 and the 6 th September low, we would allow for this to hold the initial test. This is seen as the last defence for the 1.2662 August low," says Karen Jones, head of technical analysis at Commerzbank.

The pair recently eroded the 50-day moving average (MA) just above 1.30, another bearish sign, which invited an earlier slide to Wednesday's lows. Investors use the 50-day moving average as a rough and ready trading signal. If the price is above it the signal is bullish and if below it is bearish.

The decline may have been caused more by the Dollar strengthening rather than Sterling weakening, as reports from Westminster suggest Theresa May's speech before the 1922 committee was enough for her to avoid a leadership challenge, which probably means the spectre of a leadership challenge has receded - a positive for Sterling.

The 1922 committee is a group of conservative back-benchers. They were expected to be highly critical of the prime minister at the meeting on Wednesday as May sought to shore up support for her leadership.

"The meeting is over, and May appears, on first reports, to have emerged unscathed. Reminder: UK politics can change extremely quickly at the moment, so this is only an interim verdict," reported Peter Walker, in The Guardian.

Former Home Secretary Amber Rudd claimed the PM had “won the room”, while her predecessor Sajid Javid added it was “a very positive statement”, according to Paul Waugh, an editor at the Huffington Post.

A separate report from a senior Tory, however, has suggested it is still 50:50 whether May will survive the week.

The prime minister was asked several difficult questions during after her speech, which she is said to have handled with admirable aplomb.

One of the most pointed came from MP Philip Davies, who asked May whether the 17 million people who voted Leave in the 2016 referendum would recognise what they voted for when they saw her Brexit deal.

The prime minister replied that they would, but suggested that they would also see a Brexit that "protected the economy from the more difficult ‘consequences’ of leaving the EU," according to Waugh.

The MP Andrew Bridgen, who is an open enemy of Theresa May, asked her to list three concessions she has wrung out of Europe during the negotiations. Among the examples she named were that UK courts would have supremacy over EU courts.

Earlier reports that Graham Brady, the head of the 1922 committee has received 46 out of the 48 letters needed to trigger a leadership challenge, were dismissed as pure speculation by Brady who said he had never revealed how many letters he had received - not even to his wife.

If there is a leadership challenge the Pound is likely to drop as it will increase political uncertainty, but it probably will not lead to long-lasting weakness, as most analysts think the Tory rebels do not have the numbers to actually beat May in the final contest vote involving the whole party.

"The lack of any actual action from the rebels "casts doubt on whether the rebels have sufficient numbers to formally defeat Prime Minster May in a vote of confidence (159 is the magic number), or at least for the vote to be close enough to severely undermine confidence in her position," says Lee Hardman, FX strategist at MUFG.

This could suggest underpinning support for her position and possibly even Sterling as well.

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