Pound exchange rates soften as EU rejects May’s attempts to renegotiate deal

Philip McHugh December 17th 2018 - 2 minute read

The pound weakened on Friday, as the UK currency was undermined by Theresa May’s unsuccessful attempts to obtain legal assurances from the EU regarding the Irish backstop agreement.

Sterling has stabilised this morning however, with GBP/EUR flat at €1.1130, GBP/USD muted at $1.2593 and GBP/CAD unmoved at C$1.6850, while GBP/AUD has climbed to AU$1.7558 and GBP/NZD is dead flat at NZ$1.8511.

Coming up this week, the Bank of England (BoE) and Federal Reserve will in focus as the two central banks hold their final policy meetings of the year.

What’s been happening?               
                                      

The pound fell back at the end of last week as Theresa May’s attempts to salvage her Brexit deal were dealt a blow by the EU as European leaders rebuffed her pursuit of ‘legal assurances’ regarding the Irish backstop proposal.

Following an EU summit in Brussels late on Thursday, European Commission President Jean-Claude Juncker branded May’s suggestions as ‘nebulous and imprecise’, disappointing some GBP investors who had hoped to see some progress.  

Sterling was able to avoid registering any losses against the euro however, with the GBP/EUR exchange rate range bound through Friday’s trading session, as the latest Eurozone PMIs revealed business growth in the bloc slowed to a four-year low in December.

Meanwhile the GBP/USD exchange rate fell sharply at the end of last week’s session, with the pairing falling as much as 0.8% as some disappointing Chinese economic data and the slowdown in the Eurozone prompted skittish investors to flock to the safe-haven US dollar.

What’s coming up?

Looking ahead, in focus this week will be on the latest rate decisions by both the Bank of England and the US Federal Reserve.

Up first will be the Fed’s rate decision on Wednesday, with the bank expected to hike rates, but with the US dollar likely to weaken if the forward guidance hints it may pause interest rates at some point in 2019.

Meanwhile, the BoE will conclude its policy meeting on Thursday, potentially offering the pound some temporary relief if it appears open to raising interest rates next year.

However in the more immediate future will be the release of the Eurozone’s latest trade and CPI figures, with the euro possibly sliding if they appear to indicate that activity in the bloc continued to slow in the fourth quarter.
 

Written by
Philip McHugh

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