Pound spikes following Barnier comments

The Pound has just spiked following some surprise comments from EU chief Brexit negotiator Barnier.

At a press briefing in Berlin, he just said that they (EU) are prepared to offer a partnership with Britain such as they’ve never had with any other country before. Taken at face value, this headline would obviously represent a marked change in rhetoric from their previous stance and could be a bit of game-changer.

Clearly, it’s a rather vague comment lacking any details, so it must be taken with a pinch of salt. However, whichever way you look at it, you still get the sense that their tone is softening and that they seem keen to reach a deal.  This comment follows earlier comments from UK Brexit negotiator, Dominic Raab, who said he was confident a deal is “within our sights”.

As a result, the Pound has shot up over a cent against both the Euro and USD.

Pound close to a 1-year low against Euro

The Pound has slipped close to a one-year low against the Euro today as the market continues to price in a higher chance of a “no-deal” Brexit.

Earlier, Theresa May said that a no-deal Brexit “wouldn’t be the end of the world”, as she re-iterated that a no-deal scenario is better that a bad deal. The French and German governments are also beginning to talk more negatively about reaching a deal with the UK. Today, the German Foreign Minister said that a hard Brexit was “not yet off the table” and the French prime minister has asked ministers to make contingency plans for a no-deal outcome.

Clearly things look set to continue to drag out for a while longer. The problem for the Pound, however, is that the longer this goes on for (and the closer Brexit day approaches), the more fears of a no deal will exacerbate and the uncertainty will go up, which traders hate.

Heavy flows out of the USD and into the Euro over the past 10-days have also led to increased Euro strength, which has amplified the Euro’s move against Sterling. As a result, the GBP/EUR is down nearly 2-cents from last week’s high and now trades at a 1-year low.

Dollar weakens as Trump criticises Fed Chair Powell

The USD has weakened overnight after President Trump was once again critical of the Federal Reserve for raising interest rates.

He thought the new Fed Chair (Jerome Powell) would be a “cheap money man” and said he was “not thrilled” with his programme of rate hikes. The Fed are expected to raise rates a total of four times in 2018, which has made the USD very attractive and led to significant Dollar gains over the past few months.

One of Trump’s key priorities is to reduce the ballooning US trade deficit and a stronger USD is clearly going to hinder this as a stronger domestic currency makes imports cheaper and exports less competitive. Ironically, the intensifying trade tensions between the US and its trading partners, caused by Trump’s aggressive tariffs, have only fuelled further demand for the USD as market risk aversion increases the flight to the safety of the Dollar.

It’s unusual for Presidents to criticise the Federal Reserve because they are an independent agency designed to do the best to maintain economic stability and not be influenced by politicians. Certainly Trump’s comments have helped lower the USD but his words can only do so much and the interest rate differentials are likely to be more dominant in investors’ minds. Clearly Trump will need to change his tactics if he wants a more enduring change in the strength of the USD.

As a result, both the GBP/USD and EUR/USD touched a 10-day high, with the GBP/EUR being dragged slightly lower. There are no significant data release this week, however, the chief Brexit negotiators are back around the table today so expect some headline news from these talks.

Dollar stronger as Turkey crisis escalates and risk aversion increases

The Euro has been hit this morning over mounting fears that European banks are exposed to the crisis hitting Turkey.

Turkey have been having major economic issues, burdened with huge amounts of short-term debt, a high account deficit, spiralling inflation and an ongoing diplomatic row with the US. This has led to the Turkish Lira falling to an all-time low this morning. Although not deemed critical at this stage, the ECB have reported their concerns over the exposure some European banks face from their operations and lending to Turkey and the fear of contagion into the Union.

Turkish President, Erdogan, has faced huge criticism over how he has dealt with the crisis after his unconventional approach to monetary policy and handling of the US situation.  Many feel that he should have raised interest rates a long time ago to control inflation and strengthen the Lira. Mr Erdogan remains defiant against this criticism, which is further adding to the problem and eroding Turkish banks’ capital levels.

This, coupled with heightening global trade tensions and Brexit, has increased market risk aversion leading to a huge flight to ‘safe-haven’ currencies such at the Japanese Yen, Swiss Franc and USD.

As a result, this has pushed the EUR/USD rate through key support and to its lowest levels in a year. The GBP/USD has again been dragged lower and now trades at 13-mth lows having lost a cent overnight. The GBP/EUR is off yesterday’s lows but remains subdued.

Pound continues move lower as hard Brexit fears increase

Sterling has continued its run lower today as concerns increase that the UK will exit the EU without a trade deal.

Traders have been steadily paring back on long Sterling positions as Brexit negotiations hit a stalemate and the deadline fast approaches (less than eight months away). Over the weekend, Britain’s trade minister, Liam Fox, added fuel to the fire by suggesting that the odds of no-deal Brexit scenario had increased to 60%.  Furthermore, Bloomberg has just reported that a cabinet meeting will take place in early September specifically on how to deal with a no-deal situation.

The Pound has also continued to feel the effects of last week’s Bank of England interest rate meeting. Although they raised rates from crisis-era lows, the central bankers indicated that they were in no rush to raise rates again and that a potential hard Brexit could mean they move in the opposite direction.

As a result, the GBP/USD has hit fresh 11-mth lows today having lost another cent in the last 24hrs. The GBP/EUR has also caved down to the lowest levels since October 2017 after falling over 1% overnight. UK economic data releases are likely to be taking a backseat as Brexit news dominates the fate of Sterling. Pound bulls will be hoping for some more optimistic comments from the politicians when they get back from their summer holiday.