Pound sinks as cross-party Brexit talks show little progress

The pound suffered a setback yesterday, slipping on the back of concerns that little progress was being made in ongoing cross-party Brexit talks.

Sterling remains subdued this morning as well, with GBP/EUR dipping to €1.1539, GBP/USD is flat at $1.3057 and GBP/CAD is holding at C$1.7397, while GBP/AUD and GBP/NZD both weaken, striking AU$1.8140 and NZ$1.9375 respectively.

In focus this morning will be the UK’s latest CPI figures, with GBP exchange rates potentially rallying if inflation rose in line with expectations last month.

What’s been happening?

The pound fell back against the majority of its peers yesterday as sentiment in the UK currency was dented by comments from Labour leader Jeremy Corbyn, who suggested that cross-party talks with the Conservatives had stalled.

This undermined the release of some upbeat UK labour figures earlier in the session, with Sterling weakening despite data showing that unemployment held at a 44-year low in February, whilst wage growth simultaneously held at decade-high.

Placing further pressure on the GBP/EUR exchange rate was the release of ZEW’s latest economic sentiment index for the Eurozone, with the euro finding support as the index jumped to a one-year high in April amid optimism that global economic conditions are improving.

Meanwhile, the GBP/USD exchange rate losses were tempered by the release of the latest US economic data, with the US dollar struggling to find momentum in wider trade following a shock contraction in US industrial production in February.

What’s coming up?

Looking ahead, centre stage this morning will be the UK’s latest Consumer Price Index, with the pound potentially strengthening if inflation rises in line with expectations.

Economists forecast that UK inflation will have ticked higher last month, rising to 2% and falling within the Bank of England’s target range for the first time in 2019.

While the BoE is currently paralysed by Brexit uncertainty, the uptick in inflation may leave the door open for a rate hike later in the year if a Brexit deal is finalised in the coming months.

Meanwhile, USD investors will be focused on the release of the US trade balance figures this afternoon, with the US dollar potentially facing some pressure if the domestic trade deficit expanded again as expected in February.

Finally, the Eurozone will publish its own trade figures this morning, with the euro possibly strengthening if exports in the bloc continued to accelerate at a healthy pace in February.