GBP/USD buying opportunity? May could be posturing

  • A defiant MAy more sent the GBP/USD plunging 1.50%.
  • The PM’s position may be a political move ahead of her party’s conference.
  • The downfall could turn into a buying opportunity.

UK PM Theresa May said she always treated the EU with respect and expected the same. She said she will not accept tearing up her country in reference to the thorny issue of the Irish border and said the UK will not be a ruled take. The PM responded to the Salzburg Summit in which the EU rejected her Chequers proposal outright.

The feeling of rejection was exacerbated by the British newspapers, which described it as a humiliation. The EU’s Donald Tusk did not help matters by posting jokes about eating a cake and leaving it whole, and also cherry picking, on his Instagram page.

With all this bad blood, it’s no wonder the GBP/USD is down 1.50% and trades well below 1.3100. The pair touched 1.3300 on Thursday.

But are markets ignoring the context?

Mind the calendar

The PM faces fierce opposition from hard-Brexiteers in her party. And her party does not command a majority in parliament. Some of her opponents are already plotting to oust her and put former Foreign Secretary Boris Johnson in her place.

The Conservative Party holds its annual conference in Birmingham from September 30th to October 3rd. May may face a challenge there.

And by toughening up to the EU, she may convince some of her opponents that she is aligned with them, softening their desire to dethrone her.

As we have noted before, the UK may surrender and go for a Norway-style deal after the dust settles from the Tory Conference. If May is only posturing and markets took her for her word, things could turn around quickly.

GBP/USD volatility is elevated and so is sensitivity to any Brexit headline. A mere hint of a softer stance from October 3rd onwards could totally turn the tables in favor of Sterling.

Is there a buying opportunity here?


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