Sterling tumbled to multi-month lows yesterday as fears of a so-called ‘hard Brexit’ persisted despite comments from UK Prime Minister Theresa May insisting that the government would agree the best possible deal for Britain.
Sterling plunged when markets reopened for this week’s session in response to remarks from PM May, which appeared to signal that immigration controls would be sought over full access to the EU single market. May said Brexit was about ‘getting the right relationship [with the EU], not about keeping bits of membership’. The PM also stated that Brexit would give Britain ‘full control’ of its borders. Investors reacted vociferously to the speech by sending Sterling lower across the board.
Seeking to clarify her comments, PM May remarked on Monday that a ‘hard Brexit’ was not inevitable and criticised media sources for putting too much significance on the terms ‘hard Brexit’ and ‘soft Brexit’. However, the Pound failed to recover following May’s second statement and investors remain concerned that Britain looks likely to lose single market access – the scenario commonly referred to as a ‘hard Brexit’.
The Pound to Euro exchange rate tumbled to its lowest level in almost two months yesterday, ceding -130 pips as single market anxieties weighed on demand for the UK currency.
European data printed better-than-anticipated, with German industrial production accelerating from 1.6% to 2.2%, Eurozone investor confidence jumping from 10.0 to 18.2 and Eurozone unemployment remaining at a seven-year low of 9.8%. Although these sanguine data prints contributed to the single currency’s gains yesterday, it was the fear of a ‘hard Brexit’ that really drove GBP/EUR lower. PM May’s comments on controlling UK borders were met by a warning from German Chancellor Angela Merkel, who said that Britain would only gain limited access to the single market if it did not adhere to the EU’s four basic freedoms – free movement of goods, capital, services and people.
‘Cable’ slid by around a cent to strike the worst Pound to US Dollar exchange rate since October. Traders sold the UK currency in large numbers following UK PM Theresa May’s comments on Brexit, which appeared to pave the way to a ‘hard Brexit’ without full access to the single market.
Back in October May made remarks to this effect and Sterling lost a lot of ground. However, on that occasion the Pound was able to recover thanks to soothing sentiments from government ministers, which encouraged traders to expect retention of single market access. If we see government officials backtrack in this fashion again, then there is scope for GBP/USD to rebound fairly substantially. However, if government rhetoric remains linked to life outside of the single market then the bullish ‘Greenback’ is liable to publish further gains versus the Pound.
Oil prices tumbled -3% yesterday as record Iraqi exports threatened to undermine coordinated production cut action. Crude prices were also impacted by news that US production has now risen for 10 months on the trot – a sign that US producers may well use the recent oil price rises as an opportunity to reenter the market.
However, despite a bearish day on the oil market, the commodity-sensitive ‘Loonie’ still managed to appreciate by around 150 pips versus the Pound, which faced a crisis of confidence following PM May’s latest Brexit remarks.
The Pound to Australian Dollar exchange rate plummeted over two-and-a-half cents yesterday to hit a near-two-month low. There was little significant data released relating to the Australian Dollar so it was not a bullish AUD move that took GBP/AUD lower. Rather, it was negative sentiment towards the Pound deriving from UK PM Theresa May’s lack of clarity on Britain’s post-Brexit single market access that gave the ‘Aussie’ the impetus to rally.
Sterling tanked -250 pips versus the New Zealand Dollar yesterday to register a new two-month low due to anxieties surrounding Britain’s ability to retain full access to the single market and enact stricter regulations on European immigration.
15:00 USD Wholesale Inventories (NOV F) Medium 0.9%
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