15/06 – Brexit back on the menu

GBP: EU accepts UK’s no on transition
EUR: Starting to see Brexit risk creep in
USD: Higher as the world refocuses on Covid infections

Sterling

Sterling is down 4 cents in as many trading days against the USD as the wider conversation around market risk continues to skew in favour of caution over exuberance.

Brexit is back on the menu once again this week. The EU and UK have until the end of June according to the Withdrawal Agreement to call for an extension to the transition period. On Friday, the EU publicly accepted that the frequent communications from the UK saying “no” are definitive; there will be no extension.

We now have 6 months to sign the outline of a trade deal with the EU or the UK will leave without a deal and trade with the EU under WTO rules.

Sterling is also being knocked lower by wider expectations that the Bank of England will increase their stock of assets bought under their QE plan by around £150bn this week while also showing the possibility of negative interest rates.

The meeting takes place on Thursday.

Euro

The UK government’s pronouncement on the Brexit extension period on Friday means that EURGBP is about to become one of the most watched crosses in the world of currency. A lack of extension to the negotiating period is not a negative for the euro yet and we would foresee a stronger single currency moving forward against the pound as Brexit headlines increase.

US Dollar

Stock markets around the world are once again a sea of red this morning on fears of a 2nd breakout of Covid-19 with outbreaks in Beijing, Houston, Tokyo and South Africa grabbing the headlines. USD will naturally trade stronger in these initial periods of uncertainty alongside the yen and the Swiss franc given their haven status.

For now, we must wait to see whether we will be able to qualify those outbreaks as “contained” or not and upon that distinction does the tide of market sentiment rest.

Elsewhere

In line with the continued declines in risk assets like stocks and commodities, currencies like the AUD, NZD and NOK have started the week on the backfoot. Oil prices in particular are at an interesting place currently and could be ripe for further falls in the coming weeks, increasing the pressure on those currencies tied to the industrial supply chain.

Have a great day and please take care.

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Jeremy Thomson-Cook

Jeremy Thomson-Cook

Jeremy has over 13 years experience working in the FX industry. As a specialist in political risk mitigation and currency hedging, he regularly advises clients on the day-to-day moves of the markets and the implications of fiscal and monetary policy on international businesses.