The pound, paired with the dollar, continues to dive down, updating domestic lows. Periodic price rebounds give bulls of the pair false hopes for recovery, but bearish sentiments for the pair are strong enough. What are the reasons for such decisive movement? After all, a few weeks ago, the pound confidently moved toward the direction of the 40th figures, clearing strong resistance levels on its way. Now, the traders of this pair started talking about the return to the area of 20th figures, judging by the insistence of the bears.
The main reasons for the weakness of the British currency can be divided into two parts. The first lies especially in the economic front. The PMI index in the manufacturing sector clocked in worse than projected, and in the construction sector the reading even fell below the 50th mark, which indicates a slowdown in the economy in this area (the figure came out at the lowest level since July last year). Some support could be provided by the PMI index in the services sector, which came out several points above the forecast figures. However, the structure of this indicator did not give any cause for optimism. On the contrary: employees of the service sector were under considerable pressure amid a significant increase in the cost of operating costs and the strongest price increase over the past six months. And all this happens against the backdrop of a decline in domestic demand, which led to a slowdown in business activity.
This situation can lead to more sad consequences in the form of a slowdown in the growth of the British economy. It is worth noting that the market has already much placed into the current prices the possibility of an interest rate hike at the November meeting (the probability is about 80%), therefore such tendencies cause panic among market participants. The contrast between the hawkish meeting of the Bank of England and the subsequent disappointing data puts additional pressure on the pound.
However, the disappointing PMI indices still could not ensure the strength of the GBPUSD pair, indicating a decline that is prolonged and without rebounds. These indicators have, though important, but rather, limited impact. The number one theme for the pound is Brexit. A complex and conflicting procedure for the "divorce" of Britain and the EU exhausts traders, especially in recent times as the comments of politicians has increasingly become more gloomy.
So, the British minister David Davis, who is in charge of the Brexit process, made a rather pessimistic statement the day before yesterday at the congress of the Conservative Party. He said that, despite all the negotiating efforts, the UK citizens should be prepared for the fact that there will be no deal with the European Union. Despite the fact that the negotiation process has been going on for several months, there has been no progress. At the moment, none of the key issues has been resolved: neither on the financial aspect nor in the social one. The uniqueness of the procedure itself, as well as political ambitions of politicians (both the EU and Britain) stall the whole process, and at the moment the parties are currently at a stalemate. Next week in Brussels, the next talks which will mark the fifth round of negotiations, should start - however, judging by Theresa May's disposition, there should not be any breakthrough from them.
In addition, the British press already hints that Prime Minister "staggered", and her successor could be Boris Johnson, who is known for his uncompromising attitude towards the EU. In particular, he recently voiced four conditions that (in his opinion) should be voiced by the British: first, no payments from Britain to access a single market; secondly, the refusal to duplicate EU legal norms in the context of access to the EU market; thirdly, the transition period should not be more than two years; and fourthly - the UK does not accept any regulations adopted during the transition period. Obviously, Brussels will not fulfill the announced conditions and the divorce of Britain and the EU will come to a dead end.
So far, these requirements are only the opinion of the Minister of Foreign Affairs. Many politicians in Britain, incidentally, expressed their dissatisfaction with the fact that Johnson interferes in the Brexit process (whereas a separate minister is engaged in this), but in the context of the foreign exchange market this circumstance does not matter. The market was frightened that the head of the British Foreign Ministry with such a tough stance could take the chair of the prime minister, which would lead to formational shifts in the issues of external (and internal) politics.