Pound Sterling Exchange Rates Sink despite Brexit Progress
Pound Sterling (GBP) skidded lower versus the majors on Friday, despite European Union (EU) leaders agreeing to start discussing the next stage of the Brexit talks in January.
EU officials formally confirmed on Friday that the British government had made ‘sufficient progress’ to move the talks forward from the divorce settlement to future trade.
This was expected to bolster the appeal of the Pound because it reduces the probability of Britain crashing out of the EU without a transitional deal, however, markets did not react as anticipated and Sterling nursed losses across the board.
It seems that investors were spooked by remarks from European Commissioner Jean-Claude Juncker suggesting that the second round of Brexit talks would be ‘considerably harder than the first – and the first was very hard’.
Pound to Euro Exchange Rate Slides Following Jean-Claude Juncker Comments
The Pound to Euro (GBP/EUR) exchange rate depreciated over -60 pips on Friday as a formal notification of Brexit progress did little to bolster the appeal of the British currency.
Jean-Claude Juncker’s warning appeared to weigh on Sterling, allowing EUR to gain on fears that, despite recent progress, a disorderly Brexit is still a distinct possibility.
It seems that Brexit headlines will continue to be the main driver of volatility in GBP/EUR exchange rate over the medium-term, with both the Bank of England (BoE) and the European Central Bank (ECB) unlikely to alter monetary policy anytime soon.
Pound to US Dollar Exchange Rate Depreciates -100 Pips on US Tax Bill Bets
The Pound to US Dollar (GBP/USD) tumbled by over -100 pips on Friday as hopes that Brexit progress would boost Sterling were unfulfilled.
Data in the US came in disappointingly, with industrial production decelerating from 1.2% to 0.2% in November and manufacturing output slowing from 1.4% to 0.2%.
The US Dollar, however, was not negatively impacted by the results due to optimism surrounding President Donald Trump’s large-scale tax overhaul.
Demand for the ‘Greenback’ rose on expectations that Trump’s huge corporation tax cut, from 35% to 21%, would be passed before the end of the year.
While most economists doubt the tax cut will prompt an acceleration in economic growth from 3% to 6%, as Trump suggested it might, the bill is likely to bolster GDP prospects and spur price and wage inflation.
This could see the Federal Reserve raise interest rates more than policymakers’ current projections of three times in 2018.
Pound to Canadian Dollar Exchange Flat as Lower Oil Prices Weigh on ‘Loonie’
The Pound to Canadian Dollar (GBP/CAD) exchange rate fluctuated on Friday, but Sterling managed to avoid sustaining any serious losses versus the ‘Loonie’.
A surprise -0.4% slide in Canadian manufacturing sales softened the appeal of the North American currency, as did a drop in the price of Canadian oil.
While oil from Alberta oil fields (WSC) typically sells with a discount of around $10 a barrel compared to the benchmark WTI, the deficit is now a four-year high of $27 per barrel, which could continue to act as a drag on demand for the commodity-sensitive Canadian Dollar.
Pound to Australian Dollar Exchange Rate Strikes One-Month Low
Sterling plummeted -100 pips to strike a one-month low versus the Australian Dollar (GBP/AUD) over the weekend.
The Pound has now fallen for six consecutive days of trading since striking a 17-month high earlier in the month. Although GBP/AUD is on a bad run, bargain hunters could see the one-month low as an attractive entry point to resume investing in Sterling.
Pound to New Zealand Dollar Exchange Rate Declines -150 Pips to 1-Month Low
The Pound to New Zealand Dollar (GBP/NZD) exchange rate also slid to a one-month low on Friday, with traders seemingly concerned by the downbeat tone of European Commissioner Jean-Claude Juncker’s statement on the second phase of Brexit talks.
Data Affecting Today’s Pound Sterling Forecast
10:00 EUR Eurozone Consumer Price Index (YoY) (NOV F)