Pound stalls as Brexit risks rise

The pound remained rangebound yesterday, with the UK currency struggling to find momentum as it was undermined by concerns over who will replace Theresa May as Prime Minister.

Sterling continues to be suppressed this morning, with GBP/EUR flat at €1.1342, GBP/USD muted at $1.2619 and GBP/CAD subdued at C$1.7041, while GBP/AUD and GBP/NZD hold steady at AU$1.8207 and NZ$1.9353 respectively.

In the spotlight today will be the latest US GDP estimate, with the US dollar potentially gaining if the figures confirm the US got off to a solid start in the first quarter.

What’s been happening?

The pound was left to trade sideways against the majority of its peers on Wednesday as investors continued to steer clear of the currency given the current political turmoil in the UK.

This came as markets assessed that the risk of a no-deal Brexit was on the rise, with analysts at Berneberg suggesting the risks had risen to 35% as bookmakers’ odds indicate the next PM is likely to be a Brexiteer.

However, broad weakness in the euro allowed for the GBP/EUR exchange rate to drift higher yesterday, with the single currency coming under pressure following the publication of the European Central Bank’s (ECB) financial stability review, in which it warned of downside risks to the Eurozone.

Meanwhile, the GBP/USD exchange rate was left muted on Wednesday as the safe-haven US dollar continued to see increased demand as China’s threat to restrict rare earth minerals to the US marked another escalation in trade tensions.

What’s coming up?

Looking ahead, the main focus for investors today is likely to be the publication of the latest US GDP estimate.

This could lend some further support to the US dollar throughout today’s session if the latest reading confirms that the US economy got off to a strong start in 2019.

Meanwhile, potentially distracting investors (for a while) from the Conservative leadership contest this morning will be a speech by the Bank of England’s Dave Ramsden, with the pound potentially being offered some support if the BoE policymaker appears hawkish on the chances of a rate hike this year.

Finally, in the absence of any notable Eurozone economic data, the focus for EUR investors is likely to be on the political situation in the bloc, particularly in regards to Italy, where Matteo Salvini’s calls for the EU to change its budget rules have been re-energised by his party’s recent performance in the European elections.