Lack of progress in Brexit talks weakens Sterling
Sterling has been moving lower today as Brexit comes back onto the radar and as Britain continues to struggle with Covid-19.
Earlier in the day the British government insisted that it was not going to extend the Brexit transition period regardless of the ongoing coronavirus crisis. A potential extension needs to be agreed before the end of June to prevent the UK leaving without a trade deal at the end of this year.
Later in the day, it was revealed that the latest round of Brexit negotiations hadn’t gone very well with little progress being made. Both sides continue to maintain their red lines with the EU insisting the UK must adopt a level-playing field for a free trade deal and the UK saying that’s not possible. This has increased concerns of a no-deal Brexit which has dragged the Pound lower. It’s likely that both sides will be leaving things up to the last minute (i.e. end of June) which is likely to keep the Pound under pressure and at the least limit any major upside potential.
The UK’s covid-19 death rate has topped 40,000 which is the worst reported in Europe and fears of a major downturn are troubling markets. The Bank of England said that we could see a contraction of around 25% in the second quarter of 2020 which would be the largest annual decline in more than three centuries. More quantitative easing is now widely expected to be announced at their next meeting in June but it seems negative interest rates are off the cards.
As a result, the Pound is down around 1% across the board today and has moved below some key levels. The GBP/EUR is down to fresh 6-weeks lows having lost around 2.5% in May. The GBP/USD has slipped to a 7-week low today and is down around 3.5% since the start of May.