GBP/USD tumbles below 1.29 on Brexit uncertainty

The pound fell back on Tuesday as the growing risk of a no-deal Brexit took its toll on the UK currency.
 
Sterling remains on the defensive so far this morning, with GBP/EUR slipping to €1.0973 and GBP/USD diving to $1.2879. GBP/CAD has tumbled to C$1.6929, while GBP/AUD and GBP/NZD retreat to AU$1.7983 and NZ$1.9370, respectively.
 
With Brexit still in the spotlight today, can we expect GBP exchange rates to maintain their downward trajectory?
 

What’s been happening?

The pound found itself on the back foot through yesterday’s session as GBP investors were unnerved by reports of a lack of progress in UK-EU post-Brexit trade talks.
 
Reuters cited an EU source who said that chief Brexit negotiator Michel Barnier told EU ministers on Tuesday that there still was not sufficient movement in Brexit talks.
 
Adding to the pressure on Sterling was the UK’s latest jobs report, after it revealed that unemployment jumped to a three-year high in August, with analysts warning this was just the tip of the iceberg of the UK’s unemployment crisis.
 
Across the channel we saw the euro retreat on Tuesday as concerns over Europe’s coronavirus resurgence, Brexit, and the US election plunged German economic sentiment to a five-month low according to the latest ZEW surveys.
 
The US dollar, meanwhile, rallied yesterday, being carried higher by US stimulus concerns after House Speaker Nancy Pelosi told US lawmakers that the Trump administration’s stimulus offer ‘falls significantly short’.
 

What’s coming up?

Looking ahead, it’s likely we will see Brexit dominate market sentiment through today’s session ahead of tomorrow’s deadline.
 
The UK could walk away from talks if progress towards a deal is insufficient by Thursday’ EU summit, the threat of which is likely to limit the pound’s upside potential today.
 
However, Sterling is poised to skyrocket should headlines point to positive progress or even a breakthrough.
 
In focus for EUR investors will be the Eurozone’s latest industrial production figures. August’s release could put some pressure on the euro as a slowing of factory output is likely to fuel concerns that the bloc’s economic recovery is stalling.
 
Finally, in the absence of any notable USD data releases, we may see US election speculation act as the main catalyst of movement in the US dollar today, potentially strengthening the ‘Greenback’ amidst growing political uncertainty.