GBP gains wane on rumours government fears Brexit talk collapse

The pound began yesterday making some respectable gains, although these softened later in the day after it was reported that the government allegedly fears talks with the EU will break down in the next few weeks.

GBP/EUR has today advanced 0.3% to €1.1272, while GBP/USD remains flat at US$1.3252. GBP/AUD is also flat, trending around A$1.6894, but GBP/NZD has climbed 0.2% to NZ$1.8493 and GBP/CAD to C$1.6626.

Read on to find out why the pound is likely to trend with volatility today…

What’s been happening?

The pound was on mixed form yesterday, trending in a wide range overall against its peers. There was no economic data on the UK calendar, but the pound saw what strength it had soften after it was reported the UK government fears Brexit negotiations with the EU could collapse.

Bloomberg reported that a person familiar with the government’s position believes the talks may breakdown unless the EU allows trade negotiations to begin. According to the story, Prime Minister Theresa May is unable to offer any further concessions to the EU after promising to pay into the budget in order to secure a two-year transitional deal during her recent speech in Florence.

The EU is currently preparing for talks on trade, but won’t allow the negotiations with the UK to progress until the government has settled the issue of the divorce bill; something that has so-far seen discussions grind to a halt.

GBP/EUR was able to hold onto some gains, however, as the political situation in Spain continued to weigh on the euro. The Spanish government last week called on Catalonia’s President to clarify his stance on independence, after he said that the country would go independent, but not for a few weeks.

It seems increasingly unlikely that an amicable solution can be found, which is unsettling the markets.

On a quiet day for US data, the Empire manufacturing survey was able to drive the US dollar higher. The index was expected to dip from 24.2 to 20.7, but instead leapt to 30.2, helping to push the odds of an interest rate hike in December up to 91.7%.

What's coming up?

There is plenty on the calendar to cause volatility for the pound today. Bank of England (BoE) Governor Mark Carney, Deputy Governor Sir David Ramsden and new Monetary Policy Committee (MPC) member Silvana Tenreyro are due to appear before the Treasury shortly. Carney will also later testify to lawmakers.

On top of this, the September consumer price index figures will be released and are expected to show that overall price growth accelerated last month, although core price growth is predicted to have remained stable.

Because of all this, the pound is likely to see large fluctuations on the changing monetary policy outlook.

GBP/EUR movement will be further complicated by the release of ZEW sentiment surveys for Germany and the Eurozone.

US data isn’t as influential, but medium-impact industrial and manufacturing production figures and the NAHB housing market index could still cause some turbulence.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.