Sterling hits nine month lows versus Euro on Brexit concerns

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8 August 2018

thomasdodds

The Pound slipped to its weakest position against the Euro since late-November 2017 on Wednesday morning, driven lower by ongoing concerns over Brexit and a broadly stronger common currency.

I
nvestors are increasingly concerned that Britain could conceivably leave the European Union without a deal in place in the past few weeks, with comments over the weekend from cabinet member Fox far from helping matters. Fox warned that there was a 60-40 chance of leaving the bloc without a deal, an eventuality that most economists agree would undoubtedly cause more misery for the UK currency that already shed over 9% of its value since April. The UK currency also slipped to a fresh eleven month low versus the US Dollar as trading opened for the day on Wednesday.

With no major Brexit headlines on Tuesday, Sterling’s decline was able to pause for the day against the greenback, although a broadly stronger Euro caused it to end the day lower on the single currency. The Euro itself temporarily rallied back above the 1.16 level on the USD, although the move was driven largely by technical factors rather than any underlying drivers. As we mentioned yesterday, macroeconomic news is fairly sparse in the Euro-area this week and, as such, we may need to see headlines out of US-China trade relations to shift the Euro out of the last few days 1.155-1.16 range.

US Dollar rally stalls after last week’s soft jobs report

The recent rally in the US Dollar stalled in the past day or so, with the greenback ending London trading lower against the Euro following last week’s fairly soft US labour report.

Despite some hawkish comments out of the Federal Reserve of late, currency traders are cautious about pushing the US Dollar too high for risk of the FOMC disappointing expectations, especially following last Friday’s less than stellar nonfarm payrolls report. The report, which continued to show that robust US economic growth was not yet translating into meaningful increases in wages, caused investors to dial back bets for two more rate hikes in the US this year. Regardless, financial markets are still pricing in in excess of a 50% chance that the Fed will hike in September, and then again at its December meeting, in line with the central bank’s latest ‘dot plot’.

During the London session, job opening data surprised to the upside, although little impact was seen given it is largely a second tier release. FOMC member Barkin will be speaking this afternoon, although investors will place one eye on Friday’s inflation data.