Pound extends slide on rising chances of no Brexit deal

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9 August 2018

thomasdodds

The recent sell-off in the Pound stepped up a gear on Wednesday, with the UK currency falling by over half a percent against the US Dollar and in the process slumping below the 1.29 level for the first time in a year.

S
terling experienced a torrid few days so far this week, with comments over the weekend from cabinet member Liam Fox causing investors to fret about the possibility that the UK could leave the European Union without a deal. Mark Carney’s comments last Friday further exacerbated concerns among currency traders. The Bank of England Governor claimed that the chances of a no deal were ‘uncomfortably high’, while the Bank of England itself failed to provide much reason for Sterling bulls to cheer by suggesting that the pace of interest rate hikes in the UK will be slow.

With no major releases or announcements to potentially prop up Sterling in the UK today, the Pound could be set for further losses during London trading.

FOMC member Barkin talks up strong US economy

The US Dollar edged modestly higher against the Euro yesterday, although with economic and political news at a premium, EUR/USD remained fairly range bound.

Comments from Federal Reserve member Barkin on Wednesday continued to suggest that the US central bank will continue on its path of monetary policy normalisation this year. Barkin, a member of the bank’s rate-setting FOMC, claimed that the US economy was strong enough to warrant additional interest rate hikes. He claimed that it was ‘difficult to argue that lower than normal rates are appropriate when unemployment is low and inflation is effectively at the Fed’s target’. While he did voice concern over Donald Trump’s tariff policy, he viewed gradually increasing rates as the ‘sensible approach’.

Fed member Evans will be the next central bank speaker to make a public appearance this afternoon. That aside, we await tomorrow’s US inflation data, which bodes to be one of the more significant market movers out this week.

New Zealand Dollar sinks after RBNZ pushes back rate hike

One of the biggest market moves during Asian trading was that of the New Zealand Dollar, which fell sharply against the USD following a dovish assessment from the Reserve Bank of New Zealand.

NZD slipped to its lowest level in two-and-a-half years after the bank unexpectedly committed to keeping interest rates on hold until the end of 2020. This is a fairly significant shift from the central bank that will no doubt cause much of the market to re-think its long term forecasts for the currency. The RBNZ previously suggested that rates were likely to go up in the final quarter of next year.