Private DCN Private DCN - Sterling

A sterling autumn arrives amidst Brexit fallout

By Michael Cooper September 21st, 2016

As the daylight hours fade and the temperature continues to slide, it is becoming very clear that autumn is upon us. Leaves are starting to wilt and brown and it won’t be long before we see them mimic the price action of sterling – and fall. Hopes have started to fade with regards to autumn becoming a second spring where every leaf is a flower. Instead, we saw sterling drop below psychological levels against a basket of currencies as the fear of uncertainty and Brexit return to the forefront.

Sterling was the worst-performing major currency yesterday, following comments from Czech State Secretary for EU Affairs Tomas Prouza. He stated late Monday that the UK has ‘zero chance’ of clinching an exit deal with both immigration curbs and free-market access. This, coupled with the revelation last week that another rate cut is on the Bank of England (BoE)’s radar, has put Sterling under pressure. It was only a few weeks ago that an Indian summer was on the cards, literally and for the economy.

Much of the focus will be across the pond in the US today as the Federal Open Market Committee (FOMC) meets to deliver its latest economic forecast and either signpost an interest rate hike for the end of the year or, potentially, raise rates. There is, apparently, an outside chance (20%) that we could see a rate hike from tonight. Barclays Plc and BNP Paribas are forecasting an increase. If they are right we are likely to see the US dollar strengthen.

From the UK we have the public sector borrowing figures due, but this is unlikely to be the centre of attention, with the pending news from the US.