Lack of clarity on Britain’s post-Brexit trade arrangements with the European Union continued weighing on demand for the Pound yesterday. Sterling has suffered steep losses this week following remarks from UK Prime Minister Theresa May, which did not really add anything new to the equation, but did hint that immigration controls could be prioritised over full tariff-free access to the single market.
With the Prime Minister’s commentary largely reduced to vague platitudes such as ‘the right deal for Brexit’ or ‘a red, white and blue Brexit’, the consensus view among investors is that the government still has no clear negotiating strategy. This uncertainty, combined with fears that single market access does not appear to be the top priority, has significantly reduced the appeal of Sterling to currency traders.
The Pound to Euro exchange rate touched a fresh two-month low yesterday, however, the embattled UK currency managed to mount a mini recovery during the evening.
British economic data has actually performed rather well of late. A hat trick of robust PMI reports last week signalled that activity in the private sector accelerated at its fastest pace for 17 months in December. If sturdy survey data is backed up by positive results in this morning’s industrial and manufacturing production reports then we could see Sterling attempt a recovery versus the single currency. However, it must be noted that GBP/EUR failed to make any lasting gains in reaction to last week’s sanguine ecostats and this could be the case again today.
‘Cable’ drifted towards the alarming lows that followed the ‘flash crash’ at the beginning of October.
In the early morning of October 7, extreme positioning against Sterling allowed the Pound to sink to 31-year lows. Bargain hunters quickly re-entered the market and took GBP/USD higher, and in the following weeks technical support was formed. We are now seeing GBP/USD rates in the region of this support, which means it will be interesting to monitor how the pair trades over the next fortnight.
If Sterling manages to avoid any further lows, then technical support could provide the basis for another recovery. On the other hand, a break below the support floor could prove the catalyst for another spell of misery for ‘Cable’.
The Pound to Canadian Dollar exchange rate registered a fresh two-month low yesterday as Brexit anxieties weighed on Sterling and stability in the oil market propped-up demand for the commodity-sensitive ‘Loonie’. The only economic release of the day relating to GBP/CAD showed that Canadian building permits softened -0.1% in November, following a robust 10.5% increase in October.
GBP/AUD fluctuated slightly yesterday but ultimately the pair ended the day close to where it began. The headline in all GBP-crosses at the moment is Brexit, and Brexit uncertainty constrained the Pound versus the Australian Dollar yesterday.
Profit-taking allowed Sterling to recover by around a cent versus the New Zealand Dollar yesterday, having struck two-month lows during Monday’s session.
09:30 GBP Visible Trade Balance (Pounds) (NOV) Medium -£11100
09:30 GBP Industrial Production (YoY) (NOV) Medium 0.6%
09:30 GBP Manufacturing Production (YoY) (NOV) Medium 0.4%
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