Sterling Stressed Again


Sterling has come under notable pressure, and is presently showing losses of over 1.0%  against the Dollar, Aussie and Kiwi  among other currencies. Most of the declines were seen before the release of final UK manufacturing PMI data for January, which showed an unexpected revision higher, to 50.0 from 49.8, while also highlighting ongoing concerns among respondents in the sector about Brexit. The UK currency has now given back all of the gains seen following the BoE’s decision, last Thursday, to refrain from cutting interest rates. Cable has printed a low at 1.3055 in what is already the biggest intraday decline since December 17. The post-BoE high, seen on Friday, was 1.3209, which is a one-month peak.

Today, both the UK (PM Johnson) and the EU (Chief Negotiator Barnier) will outline their initial positions with regard to  the UK-EU trade deal and like two rutting stags in the spring there will be a lot of bluster, charge and counter charge.  Barnier “We must agree on specific and effective guarantees to ensure a level playing field over the long-term”.   Johnson  “UK will resist ‘EU rules on social and environmental protections’ in trade talks”.

 Later this week PM Johnson will be visiting President Trump, heralding the start of post-Brexit trade negotiations between the two nations. Negotiations with the protectionist president will likely be tough. The outgoing British ambassador to the US, Kim Darroch, in an interview with the Guardian last week, said he doubted that the UK has the resources for parallel negotiations with the US and EU. He also said that Trump will be pitching for greater access for US agricultural products and US pharmaceutical products, which would be politically controversial in the UK. These remarks chime with bearish narratives about the Pound, which are also focusing on the UK government’s self-imposed 11-month time frame for trade negotiations until leaving the transition phase (and thereby access to the EU’s single market and customs union), which many see as being a much too short period to form a comprehensive trade deal.

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Stuart Cowell

Head Market Analyst

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