GBP slides as Brexit uncertainty grows

Markets moved to sell the pound again on Thursday as concerns grew over the UK’s ability to reach a transition deal with the EU.

The pound is trading narrowly against the majority of its peers this morning. GBP/EUR is muted at €1.1226, GBP/USD is flat at US$1.3781 GBP/AUD is largely unchanged at AU$1.7726, but GBP/NZD is down 0.2% at NZ$1.8926 while GBP/CAD trades at C$1.7681.

It’s a relatively quiet day for data today, although concerns over the Italian election and a Brexit speech by Theresa May could prompt some movement in currency markets…

What’s been happening?

Brexit once again dominated pound movement yesterday as markets remained downbeat on the UK currency following the EU’s chief negotiator Michel Barnier’s warning on Wednesday that a transition deal between the UK and EU was not guaranteed.

This has led to increased concerns that the UK may be unable to reach a Brexit transition deal with the EU this month, prompting fears that business will struggle to deal with a ‘cliff-edge’ Brexit.

Further weakening Sterling was the release of the UK’s latest manufacturing PMI, with revealed that Britain’s factories expanded at their slowest pace in eight-months in February.

The GBP/EUR exchange rate faced the most notable losses of all the crosses yesterday as the pairing was also pressured by a fall in the Eurozone’s unemployment rate.

Data published by Eurostat revealed that unemployment held at a nine-year low of 8.6% in January, after December’s reading was revised down from 8.7%.

GBP/USD showed losses of around half a cent during the European session yesterday as the US released its own factory PMI, which unexpectedly struck its highest levels since 2004 last month.

However the US dollar retreated again overnight as Trump prompted fears of a trade war after he imposed heavy tariffs on steel and aluminium imports.

But this is a positive sign as far as inflation is concerned, helping to firm bets that the Federal Reserve may have to hike interest rates four times this year.

What's coming up?

The pound could face further volatility today as a key speech from Theresa May is expected to outline five ‘tests’ for Brexit.

The PM is expected to suggest that a ‘deepest possible’ trade deal is ‘achievable’ as it would benefit both the UK and EU.

However it remains to be seen how investors will react to the speech, with Sterling sentiment likely to slide again if markets feel her aims are unachievable.

The final day of trading before the Italian election on Sunday could also prompt GBP/EUR to fluctuate as the rise in political uncertainty is likely to cause investors to become increasingly cautious.

Meanwhile, Canada will be the final G7 nation to publish its fourth quarter GDP results later this afternoon.

Economists forecast that growth will have ticked up slightly from 0.4% to 0.5% in the last three months of 2017, possibly helping the Canadian dollar advance.

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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.