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May 05, 2019
Although the UK Services PMI data is reported to be in line with expectations, the potential for British political turmoil weighs on GBP / USD and other Pound Sterling pairs. The Pound continued to decline to around 1.3010 against the US Dollar in mid-European session today. The potential for political turmoil was trailing Sterling. When the news was written, GBP / JPY had declined 0.16 percent to 145.07, while EUR / GBP was relatively stable at around 0.8570.
According to the CIPS research institute's report, the Purchasing Managers' Index (PMI) for the UK service sector climbed from 48.9 to 50.4, exactly according to the initial estimate. This good news marks the economy remains firm, although the planned exit of the UK from the European Union (Brexit) is still the main source of uncertainty for the expansion plans of various companies.
However, the impact of this data for GBP is lower than the new excitement in British politics. Regional elections have been held in the UK yesterday. Only half of the votes have been counted, but the Conservative party has lost 441 seats in the local council. The Labor Party, which had previously been rumored to be on the rise, was also stumped.
While the Liberal Democrats and Independent parties became black horses who successfully acquired many seats. The Conservatives are the largest political party that controls Westminster at the moment, as well as the base of supporters of PM Theresa May. On the other hand, Labor is known as an opposition party with the second largest power in the national parliament.
With the fall of the Conservative and Labor domination at the regional level, it opens up many new possibilities for reforming the British political constellation. PM Theresa May's attitude in dealing with the Brexit plan was blamed as the main cause of the defeat of the Conservative party and the disappointment of Labour's party constituents.
In connection with this dissatisfaction, the defeat in local elections could strengthen the pressure for PM May to resign, while increasing the complexity of Brexit negotiations. GBP / USD is boosted by the progress of cross-party Brexit negotiations. GBP / USD soared to break the 1.3000 threshold thanks to the latest update on the Brexit negotiations.
However, the continuation of the Pound rally is still vulnerable. Yesterday, the GBP / USD currency pair soared to break the 1.3000 threshold and hit a record high in more than a week. The Sterling rally supported by the progress of cross-party negotiations on Brexit continued until the beginning of the European session today.
On Tuesday, market participants warmly welcomed The Times media reports about progress in cross-party negotiations led by PM May in an attempt to break the Brexit deadlock. "For the first time in four weeks of negotiations, a senior member of the Labor party said that the government's side seems to have changed attitudes about key demands to be closer to a single custom with the European Union after Brexit.
There is also an understanding of progress in bringing together political declarations that be updated with the European Union in UK legislation, which will be needed to implement Brexit, "said Oliver Wright of The Times. Although there is no final draft Brexit agreement that can be agreed, this update relieves the concerns of some investors and traders.
Moreover, the Labor party agreed not to change the current manifesto about Brexit, so that it was expected to facilitate the achievement of the agreement. In line with that, Sterling strengthened, especially versus the Greenback, which was being wrapped up in the issue of cutting interest rates.
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