Pound fluctuates amid Brexit concerns

Philip McHugh November 26th 2021 - 2 minute read

The pound traded in a wide range yesterday, in response to ongoing Brexit jitters.

Trade in Sterling remains mixed so far this morning, with GBP/EUR sliding to €1.1834 and GBP/USD muted at $1.3301. GBP/CAD has rallied to C$1.6946, while GBP/AUD and GBP/NZD are climbing to at AU$1.8672 and NZ$1.9525 respectively.

Looking ahead, in the absence of any notable data releases, will concerns over the new Covid variant help to bolster demand for the US dollar today?

What’s been happening?

The pound trended broadly lower yesterday, with Brexit uncertainties and warnings of a winter spike in UK Covid cases undermining Sterling sentiment, despite some positive UK retail data.

While Sterling was able to pare some of these losses later in the session, its recovery remained capped as French fishermen proceeded with plans to block access to the Channel tunnel amidst the ongoing row over fishing rights in UK waters.

Meanwhile, the closure of US markets for Thanksgiving saw some investors take the opportunity to engage in some profit taking in the US dollar, following its steady rise to multi-month highs earlier in the week.

At the same time, this pullback in the US dollar allowed the euro to trade with modest gains on Thursday, thanks to the strong negative correlation between the world’s two most trade currencies.

However, the upside potential of the single currency remained limited following the publication of the minutes from the European Central Bank’s (ECB) most recent policy meeting.

These highlighted the ECB’s continued reluctance to start tightening its monetary policy, with the minutes stating that it is ‘deemed important for the governing council to avoid an overreaction’ in response to the recent rise in inflation.

What’s coming up?

Turning to today’s session, a sparse data calendar will likely see currency markets driven by external factors and market sentiment.

This could see fears over the emergence of a new Covid variant in South Africa drive investors towards the safe-haven US dollar today.

For GBP investors the spotlight is likely to remain on negotiations regarding the Northern Ireland protocol, where a lack of progress is likely to limit the appeal of the pound.

Finally, we may see the euro struggle to attract support as the focus turns back to Europe’s Covid situation amid fears some countries may need reimpose lockdown measures this winter.

Written by
Philip McHugh

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