Pound nosedives on renewed no-deal Brexit fears

The pound fell sharply on Tuesday, as Boris Johnson’s move to block further Brexit delays sent shockwaves through the currency market.

Sterling is struggling to find momentum this morning, with GBP/EUR muted at €1.1765, GBP/USD dipping to $1.3098, and GBP/CAD flat at C$1.7253, while GBP/AUD and GBP/NZD hold steady at AU$1.9136 and NZ$1.9965 respectively.

Looking ahead, the publication of the UK’s consumer price index will be in focus this morning. Will another drop in inflation exert even more pressure on GBP exchange rates?

What’s been happening?

The pound beat a hasty retreat yesterday, shedding the last of its post-election gains amidst fears the UK could face a no-deal Brexit.

This came after it was reported UK government is planning to add a clause to its EU withdrawal bill which blocks the Brexit transition period from being extended past December 2020.

As a result Boris Johnson has given himself an extremely tight deadline in which to negotiate the UK and EU’s future trade relationship.   

GBP investors fear this limits the chances of Johnson negotiating a softer exit from the EU and leaves the threat of a cliff-edge Brexit to hang over Sterling throughout 2020.

The slump in the pound provided an initial boost for the euro on Tuesday. However these gains began to fade later in the session on the back of some dovish comments from the European Central Bank’s (ECB) Olli Rehn, who suggested more monetary easing is warranted in light of weak Eurozone inflation.

Meanwhile, the US dollar sought to re-coup some of Monday’s losses during yesterday’s session, rallying on the back of stronger-than-expected US industrial production figures.

What’s coming up?

On the docket this morning we have the publication of the UK’s latest CPI figures.

This could send the pound even lower today as economists forecast inflation in the UK will have continued to slow in November, putting even more pressure on the Bank of England to start cutting interest rates next year.

For EUR investors the focus this morning is likely to be on a speech by ECB President Christine Lagarde, will she shed more light on the bank’s policy plans for 2020?

Finally, with US data looking thin on the ground today, USD investors are likely to turn their attention back to US-China trade developments, as they seek more details on the deal agreed last week.