Global Themes

  •  Brexit talks give stark reminder of pound’s fragility
  • Sterling reflects on January’s rally
  • Stock market plunge forces currency moves

GBP

GBP
Brexit talks give stark reminder of pound’s fragility

GBP/USD fell below $1.40 overnight to its lowest level since January the 23rd as confusion over Brexit talks and a disappointing services PMI release weighed on Sterling. With GBP/USD closing below the $1.40 handle, trader’s will wait to assess which direction to trade the pair. One thing to note is how quickly GBP/USD fell over the last few days, it is down over 2% since last Friday. The pair has consolidated around the mid $1.39 levels this morning.

Issues concerning the Irish border continue to cause the most consternation from the EU side as negotiators want a definitive legal agreement; if there is no hard border then Northern Ireland must follow EU regulations. This is proving a sticking point with the Democratic Unionist Party (DUP) as it would see itself differentiated from the rest of the UK. This is not a new problem, it has been one of the major issues in the negotiations but it now seems clear that when the 27 other EU nations meet to discuss in Brussels this week they will be seeking urgent clarity.

Fears from businesses over the customs union are also causing Sterling’s descent. Brexit secretary David Davis said "There's no doubt about it. We are leaving the customs union but we are aiming for a good future for Britain," however, EU chief negotiator Michel Barnier stated that the UK will face ‘unavoidable’ barriers to trade outside the EU (source: BBC). After such a strong start to the year for Sterling, the past few days are a stark reminder that any problems arising from Brexit talks will see confidence in the pound shrink quickly.

  • The key services PMI number fell to 53.0 in yesterday’s release, down from the forecasted 54.1 and January’s release of 54.2 for the period of December – this started the pounds fall with an underlying fear of the health of the UK economy.


Sterling reflects on January’s rally

Sterling came under significant downward pressure yesterday with GBP/EUR extending its 3rd consecutive day of losses. Against the Euro, Sterling has retained its range bound moves between €1.11-€1.15. The levels we have been trading between continue to show the importance of UK politics in currency markets and the underlying risks it poses to Sterling strength.

  • GBP/EUR broke above €1.15 momentarily on the 25/01/2018 but has retreated since then, though the descent has been gradual. The lack of volatile swings in the currency pair could be attributed to the fact Brexit concerns are constantly observed by market participants, meaning any negative or positive news is already accounted for.


USD

USD
Stock market plunge forces currency moves

US Stock markets plunged over concerns regarding the speed of Federal Reserve (Fed) interest rate increases. After the FOMC meeting last week there has been growing speculation we will see 4 rate hikes from the Fed this year rather than the originally predicted 3. The Dow Jones Industrial Average tumbled almost 1,600 at its lowest point, its biggest intraday point decline since August 2011 (source: WSJ). The Dow Jones was down as much as 6.3% and the S&P 500 lost 4.1%. This morning the Financial Times Stock Exchange (FTSE) opens 250 points lower.

  • As a result, safe haven currencies such as the Yen and Swiss Franc rallied. The Yen strengthened over 2% against Sterling from ¥155.42 to ¥152.15 and the Swiss Franc gained over 1% dropping to SFr1.2978 from a high of SFr1.3058. Goldman Sachs is warning there is more pain ahead in the stock markets, if correct we could see more traders move to the safe haven currencies.


*The rates displayed by our free currency converter are neither "buy" nor "sell" rates, but interbank rates, the wholesale exchange rates between banks. Interbank rates don’t include the spreads, handling fees, and other charges that may be assessed by foreign exchange providers. Please note that, as such, these rates are provided for indicative purposes only. Prior to booking a transaction, Western Union Business Solutions will advise you of the actual rate then available for a particular currency transaction.

Deliver the Daily Currency Market Analysis to my Inbox

Published five days a week, this newsletter provides day-to-day trends and activities affecting the market in easy-to-understand snapshots.