Currency Note

Pound low as worries of hard Brexit resurface

By Christopher Nye May 17th, 2019

Pound low

The pound is low as worries of a hard or even no-deal Brexit resurface. The likelihood of the Implementation Bill passing through Parliament in June is slim, while the likelihood of an increased gain for Eurosceptics in the European elections next week seems more and more probable.

The same uncertainty is also keeping the euro low, so there is a lot of volatility across the board. The dollar is stronger thanks to a bounce in treasury yields and good economic data.

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GBP: Sterling weak as May’s resignation looks likely

Sterling reached new lows yesterday as it headed for its worst run in almost 15 years, and is under increasing pressure today. This has been spurred on by reports that the Prime Minister will step down if she cannot get her bill through the House of Commons next month. Expectations for the bill passing through are so far, very low.

Boris Johnson has confirmed that he will run for leader once May resigns, saying “Of course I’m going to go for it.” There is now speculation that a hard Brexit could be on the cards, as well as the possibility of leaving the EU without a deal. As we have seen in the past, the increased prospect of a no-deal scenario tends to weigh on the pound quite heavily.

Meanwhile, after six weeks of negotiations, it has been reported that Tory whips have given up hope of finding an agreement with Labour over Brexit.

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EUR: Fears over elections put pressure on single currency

The euro is choppy today, with uncertainty around Brexit and worries for the upcoming European elections putting the pressure on. The single currency dipped to a week low yesterday against the dollar, as fears that Eurosceptics will gain a greater share of European Parliament seats in next week’s election come to the fore. Italy’s Matteo Salvini has said that he would like to ‘tear apart’ the rules that ‘strangle’ Italy if he could.

On a more positive note, the eurozone’s trade surplus was shown to be higher than expected yesterday, although it does still represent a fall year-on-year. The European Union as a whole’s trade surplus had a very sharp fall, from €11.2 billion to €2.9 billion.

Today, we’ll see a number of important releases, including April’s inflation rate – expected to increase by 0.2% – and construction output figures.

USD: Dollar strong due to positive economic data

The dollar has hit a near two weak high on the back of positive economic data and a bounce in treasury yields. Housing data and a weekly jobless claims report pointed to a strong economy.

The US has decided to put Chinese tech company Huawei on its international watch list, due to concerns over the security of its products. This has been seen by some as a negotiation tactic of the trade talks, with the US attempting to force China to make concessions.

China has said that it disapproves President Trump’s recent approach, and has said that unless sincerity is shown, it won’t be worth the US travelling to China for more talks.

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