Pound weakened by sharp increase in odds of no-deal Brexit

Philip McHugh February 28th 2020 - 2 minute read

  • Pound slumps as UK government fuels no-deal fears
  • Surprise Eurozone economic confidence improvement buoys euro
  • Warning from former Fed Chair weighs on US dollar

Fears of potential no-deal scenario drag pound lower
The pound fell sharply out of favour yesterday as markets absorbed the nature of the UK government’s negotiating objectives for the next round of discussions with the EU.
Investors were particularly discouraged by the government’s stated willingness to walk away from talks in June if enough progress is not deemed to have been made.
As the odds of a potential no-deal scenario rose sharply in the wake of the document’s release this left GBP exchange rates in a fresh slump.
With the upcoming UK-EU trade talks looking increasingly fraught any support for the pound could prove limited in the days ahead.
Euro looks to extend gains on German inflation data
EUR exchange rates found a rallying point on the back of February’s Eurozone economic sentiment index, which showed a surprise improvement from 102.6 to 103.5.
As European Central Bank (ECB) President Christine Lagarde downplayed the prospect of making any policy response to Covid-19 this offered the euro additional support.
The single currency could gain further ground this afternoon if the German consumer price index data shows signs of improvement in February.
Any evidence that inflationary pressure within the Eurozone’s powerhouse economy picked up this month may encourage EUR exchange rates to extend their uptrend.
Signs of rising inflation could support USD
Comments from former Federal Reserve Chair Janet Yellen prompted a bout of weakness for the US dollar yesterday as she warned of the potential for Covid-19 to push the US into a recession.
With markets already underwhelmed by the White House’s response to the unfolding Covid-19 crisis, support for USD exchange rates proved limited.
However, the mood towards the US dollar could improve on the back of a fresh uptick in January’s personal consumption expenditure core reading.
As PCE is the Fed’s preferred gauge of inflation, a strong showing here may limit the case for policymakers to cut interest rates again in the months ahead, offering USD exchange rates a boost.
Upcoming Data:
Friday, 28th February 2020
13:30 EUR German Consumer Price Index
13:30 CAD Gross Domestic Product
13:30 USD Personal Consumption Expenditure Core

Written by
Philip McHugh

Select a topic: