Pound sell-off persists as risk of a no-deal Brexit is ‘uncomfortably high’

Philip McHugh December 19th 2019 - 2 minute read

The pound remained on the defensive through yesterday’s trading session amidst ongoing Brexit uncertainty.

Sterling appears to have stabilised so far this morning, with GBP/EUR flat at €1.1782, GBP/USD buoyed at $1.3113, and GBP/CAD muted at C$1.7199, while GBP/AUD and GBP/NZD hold steady at AU$1.9066 and NZ$1.9906 respectively.

Top of the agenda today will be the Bank of England’s (BoE) latest rate decision. Could a dovish outlook from the bank send GBP exchange rates lower?

What’s been happening?

The pound continued to retreat on Wednesday, moving even further away from it the multi-year highs struck last week in response to growing Brexit jitters.

Markets are growing increasingly concerned about the possibility of a no-deal Brexit in 2020, with analysts at JP Morgan warning the risk is ‘uncomfortably high’ as Boris Johnson moves to legally block any extensions to the Brexit transition period.

Moreover the publication of the UK’s consumer price index did little to aid Sterling yesterday as inflation was shown to have held at a three-year low in November.

Meanwhile, the US dollar steadily rose through the mid-week, with higher US Treasury yields offsetting some jitters regarding the impeachment of US President Donald Trump.

The strength of the US dollar proved particularly problematic for the euro, leading to limited demand for the single currency in spite of German business morale improving in December.

What’s coming up?

In the spotlight today we have conclusion of the Bank of England’s final policy meeting of 2019.

While the BoE is not expected to deliver any policy changes this month, we may see the pound come under pressure if the bank’s forward guidance more explicitly hints at a rate cut in 2020.

However potentially providing some support for Sterling ahead of the rate decision will be the UK’s latest retail sales figures, with economists forecasting sales growth will rebound in November.

For USD investors the focus today will be on the Philadelphia manufacturing index, with the US dollar potentially facing some pressure if manufacturing growth is shown to have slowed this month.

Finally in the absence of any notable Eurozone economic releases the euro will be left to the whims of the market today, potentially leaving the currency vulnerable to further losses.

Written by
Philip McHugh

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