Argument over customs union weakens pound

International Trade Secretary Liam Fox clashed with a former advisor over the EU customs union yesterday, with the pound weakening on the uncertain outlook for UK trade.

The pound is on weak form today. GBP/EUR is flat at €1.1370, while GBP/USD has fallen -0.2% to US$1.3878. GBP/AUD is down -0.3% AU$1.7792, GBP/NZD has weakened -0.1% to NZ$1.9193, and GBP/CAD has fallen -0.2% to C$1.7724.

Keep reading to see why the Brexit debate made a Knight of the Realm start talking about crisps yesterday…

What’s been happening?

The Pound was weakened yesterday by the continued argument over the merits or drawbacks of remaining in the EU customs union after Brexit.

Labour Party leader Jeremy Corbyn had supported the idea of a new customs union arrangement after Brexit during his speech on Monday, but International Trade Secretary Liam Fox hit back yesterday, claiming to do so would ‘sell out’ the UK’s national interests.

However, he in turn was rebuked by his former advisor Sir Martin Donnelly, who likened leaving the customs union for trade opportunities elsewhere to choosing a packet of crisps over a three-course meal.

However, GBP/EUR was later able to recover – partly thanks to weaker-than-forecast year-on-year German consumer price growth during February.

Over the past twelve months prices have grown 1.4% in the Eurozone’s leading economy; a sharper-than-expected slowdown than the drop from 1.6% to 1.5% economists had pencilled in.

GBP/USD, recovered some of its losses at the end of the day as markets judged the sell-off had been overdone and strength in the US dollar made the pound more attractive than the commodity-correlated Australian, New Zealand and Canadian dollars.

This recovery came despite confidence from new Federal Reserve Chair Jerome Powell, as well as a solid unexpected uptick in US consumer confidence.

What's coming up?

The day’s UK economic data has already been released, so the pound could weaken due to a lack of fresh support and the fact that the GfK consumer confidence index dipped from -9 to -10 during February as expected.

GBP/EUR could post strong gains if today’s German unemployment data and Eurozone consumer price index figures disappoint.

Similarly, the day’s high-tier US economic data – the fourth-quarter GDP figures – could weaken the US dollar, although forecasts expect the latest growth rates to hold roughly steady, so there may not be much reason for the US dollar to weaken.

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Reaz Rahman
Senior Dealer

Reaz, our Senior Currency Dealer, joined us in January 2015. Reaz draws on his detailed knowledge of the foreign exchange markets to help customers to choose the right service and time to transfer.