The British pound has been sold widely on Friday following Thursday’s comprehensive rejection by EU leaders of the UK’s proposed Brexit deal—the “Chequers” plan.
The Chequers plan, which outlines terms for the UK’s departure from the EU and which includes a “combined customs territory” on the Irish border, “would not work,” said European Council President Donald Tusk at a summit in Salzburg, and is “not acceptable,” as stated by French President Emmanuel Macron. The EU has asked for the UK to table a new proposal within four weeks.
Traders came into Friday’s European session with an unquestionable agenda. Between 6am and 11am in London, the pound suffered one its sharpest intra-day falls in recent months as it slid from 1.127 to 1.119 euros, and from 1.327 to 1.318 US dollars.
British Prime Minister Theresa May has insisted that the only alternative to Chequers is “no deal”—a binary proposition that leaves foreign exchange traders unnerved.
With time running out for the UK and EU to strike an agreement and with a likely-divisive Conservative party conference approaching, expect pound volatility to increase.
In a note to corporate clients on Friday, Danske Bank suggested multinational businesses make the most of what is currently an overpriced British currency by exchanging their pounds into local currencies and by hedging sterling-denominated income now instead of later.
“We expect EUR/GBP to remain volatile and sensitive to Brexit news. We generally see risks skewed to the upside for EUR/GBP [to the downside for GBP] in the coming weeks,” a Danske market commentator said.
Both the Australian dollar and British pound sterling have had a hard time of late caught between the rock of the China/US trade war and the Brexit hard place.
Last update: 27 Aug, 2019
The RBA has cut Australian interest rates to a record low of 1 percent in an effort to boost inflation. The Australian dollar is slightly stronger following the widely expected decision but is expected to lose 5–7 percent of its value before year-end.
Last update: 14 Aug, 2019
The British pound was the worst-performing major currency in the April-June period and remains “impossible to forecast” amid a Tory leadership battle that might force “no deal” or a general election.
Last update: 30 Jun, 2019