GBP/USD slumps to multi-week lows near 1.2050 pressured by UK politics
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- Uncertainty surrounding a snap UK election weighs on GBP.
- UK Manufacturing PMI falls short of market expectations on Monday.
- US Dollar Index extends rally to fresh 27-month highs.
The political headlines and the disappointing PMI data from the UK put the British pound under heavy selling pressure on Monday with the GBP/USD pair slumping to its lowest level since mid-August at 1.2053. As of writing, the pair was trading at 1.2057, losing 0.88% on a daily basis.
Will there be a snap election to prevent no-deal Brexit?
According to the latest developments, lawmakers are discussing the possibility of asking parliament to approve a snap election with an aim to prevent the UK from exiting the European Union without a deal. Earlier today, opposition Labour Party's leader, Jeremy Corbyn, argued that this week would be their last chance to stop a no-deal Brexit and added that they would back an early election.
Although several news outlets reported that tomorrow's vote in parliament was likely to be treated as a confidence matter rather than a call for an early election, the British pound struggled to find demand. On the same issue, Nicola Sturgeon, Scotland’s first minister, said that the SNP would back a snap election given that it takes place before October 31.
Meanwhile, the data published by the IHS Markit/ Chartered Institute of Procurement & Supply (CIPS) showed that the business activity in the UK's manufacturing sector contracted at a faster pace than expected in August with the Manufacturing PMI dropping to its lowest level in 85 months at 47.4 and put additional weight on the currency's shoulders. Commenting on the disappointing reading, “The sector’s illness took a turn for the worse in August with the sharpest decline in domestic and export orders for seven years," said Duncan Brock, Group Director at the CIPS.
On the other hand, after closing the previous week on a strong note, the US Dollar Index stretched higher on Monday and touched its highest level since May 2017 at 99.13. At the moment, the index is just a tad below that level, adding 0.32% on a daily basis. The US markets will be closed due to the Labor Day holiday in the US and investors will be paying close attention to the UK political headlines.
Technical levels to watch for
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