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Brexit talks on the verge of collapse, GBP/USD slumps below $1.22

currency-newsBrexit talks on the verge of collapse, GBP/USD slumps below $1.22
The pound beat a hasty retreat yesterday, striking a one-month low in response to reports that the UK is preparing for the breakdown of Brexit talks.

Sterling remains on the back foot this morning, with GBP/EUR flat at €1.1133, GBP/USD muted at $1.2209, and GBP/CAD subdued at C$1.6256. GBP/AUD and GBP/NZD are also edging lower, sliding to AU$1.8126 and NZ$1.9355 respectively.

Brexit is likely to continue dominating headlines today, with GBP exchange rates having the potential to hit new multi-month lows if talks between the UK and EU formally collapse.

What’s been happening?

The pound was sent sharply lower on Tuesday as a source within Downing Street said a Brexit deal is ‘essentially impossible’ following a phone call between Boris Johnson and German Chancellor Angela Merkel.

Sources within Number 10 suggested there was a frank exchange between the two leaders, with Merkel making it clear a deal based on Johnson’s recent proposals is ‘overwhelmingly unlikely’.

This followed reports earlier in the day that Downing Street had begun preparing for a breakdown of Brexit talks, and that Johnson was ready to make no-deal his official policy.

Meanwhile, the euro found some support yesterday with the publication of Germany’s industrial production figures.

These revealed a surprise uptick in factory output in August, easing concerns about the severity of the country’s slowdown in the third quarter.

However, the US dollar proved to be the strongest performer yesterday, with investors flocking to the safe-haven currency in response to deteriorating US-China relations.

What’s coming up?

We expect Brexit developments to dominate market sentiment today. This may send the pound even lower if we get any confirmation that talks have formally collapsed.

The Bank of England’s (BoE) Financial Policy Committee will deliver its latest statement on fiscal stability this morning, and is likely to flag the ongoing Brexit uncertainty as a key risk to the UK’s financial stability.

For USD investors the focus will be on the minutes from the Fed’s September meeting, which may shed more light on the bank’s policy expectations. 

With EU data thin on the ground today, we could see the euro struggle to find momentum – especially as Brexit and the upcoming US-China trade talks are likely to preoccupy investors.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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