Sterling (GBP) Hit by Fresh Round of Brexit Fear

Sterling (GBP) Hit by Fresh Round of Brexit Fear

Pound Sterling (GBP)

The Pound was sold off dramatically the minute markets opened on Monday morning as the reality that Britain will likely not be able to hold onto single market access continued to hit markets.

Investors don’t expect new hope to arise from Tuesday’s Brexit speech from UK Prime Minister Theresa May. It is hoped May will clarify the government’s Brexit aims and investors predict she will prioritise greater immigration controls over ease of trade. This concern has led to Sterling performing poorly over the last week.

An anonymous source, reportedly from the government, told the Sunday Times that the upcoming speech could cause another GBP drop and investors have sold the currency off in anticipation of this. The low likelihood that May will change her tone and begin to play up the possibility of a Brexit keeping single market access means Sterling is unlikely to make a substantial recovery any time soon.

US Dollar (USD)

The Pound to US Dollar exchange rate extended its worst levels in 31 years on Monday morning after slipping lower last week. With GBP investors expecting UK Prime Minister Theresa May to announce withdrawal from the EU single market, there has been little for Sterling investors to be happy about.

US Dollar demand has been a little more mixed in the last week as jitters increase ahead of the inauguration of unorthodox US President-elect Donald Trump. However, economic factors remain broadly strong. Friday’s December retail sales figures fell just short of 0.7% expectations, but still improved from 0.2 to 0.6%. US business inventories also jumped in November, from -0.1% to 0.7%. As a result, hopes are high that the Federal Reserve will hike US interest rates if Donald Trump takes up his fiscal stimulus projects as he proposed on the campaign trail.

Euro (EUR)

The Pound to Euro exchange rate tumbled throughout last week and as soon as markets opened on Monday morning plunged again. As a result, GBP/EUR has drawn ever closer to the lows seen through October and early-November. The main reason for the pairing’s Monday drop was the increasing expectation that Theresa May could announce that the UK would be fully withdrawing from the EU, including giving up its single market access, during her anticipated speech on Tuesday.

Demand for the Euro, on the other hand, has improved slightly in the last week. Investor concerns about the Eurozone’s economic outlook were relieved slightly after the European Central Bank (ECB) appeared to be split on whether to extend quantitative easing (QE).

Australian Dollar (AUD)

The Pound to Australian Dollar exchange rate tumbled throughout last week and on Monday morning plummeted once more. While GBP/AUD recovered slightly as European markets opened, the pair is now increasingly close to the lows not seen since October 2016.

Monday morning saw the publication of Australia’s December TD securities inflation figures, which improved from 1.5% to 1.8% year-on-year. Prices of Australia’s primary export, iron ore, have also continued to perform well in the new week keeping demand for the ‘Aussie’ strong.

New Zealand Dollar (NZD)

The Pound to New Zealand Dollar exchange rate saw similar movement to GBP/AUD throughout last week and Monday morning, hitting its worst levels since early November on concerns that UK Prime Minister Theresa May will confirm that the UK is withdrawing from the EU single market.

GBP/NZD edged away from its worst levels as European markets opened on Monday due to fading demand for risky currencies like the ‘Kiwi’. The pair may fall again if Tuesday’s Global Dairy Trade (GDT) figures impress.

Canadian Dollar (CAD)

The Pound to Canadian Dollar exchange rate slipped last week and continued to fall on Monday morning. GBP/CAD is now trending near its worst levels since 2013.

While prices of oil (Canada’s most lucrative commodity) have fluctuated slightly in recent sessions due to persistent concerns that the commodity will not see a long-term price improvement, the lack of demand for the Pound has meant GBP/CAD failed to rise from its lows.

Prices of oil remained solid in the new week even as doubts on the effectiveness of OPEC’s output cuts remained.


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