IFX Market Report: Monday 20th May 2019

The pound fell to a four-month low on Friday after cross-party talks finally collapsed and now concerns are growing as to the possible implications of Theresa May’s resignation. The pound was trading between $1.29-1.32 when Brexit was delayed until October, but it has dropped more recently on the possibility of a more Eurosceptic Prime Minister who could move towards a no-deal Brexit. The markets are now pricing in the higher probability of this outcome.

Sterling hit a four-month low of 1.2733 and fell 0.6% against the euro on Friday, marking ten consecutive days of losses. Analysts are now considering many other possible outcomes such as a Labour government, which would also cause a drop in the pound, and no Brexit at all which would be a huge boost for the pound. This week’s EU elections are another cause for concern with Nigel Farage’s Brexit party on course to pick up around 34% of the vote, more than Conservatives and Labour combined.

GBPUSD opened at 1.2783 and fell steadily across the session, closing at a low of 1.2732

GBPEUR opened at 1.1437 and followed a similar pattern, closing at 1.1404 but fell as low as 1.1375 later in the evening
The dollar rose on Friday as the concern about the possible result of the EU elections also dented demand for the euro. The euro was also affected by the Italian Deputy Prime Minister commenting last week that EU rules are harming Italy’s economy. The eurozone’s exposure to trade tariffs, particularly in the automotive industry means that the euro will feel the effects of US-China trade tensions. The dollar has been the favoured safe-haven currency even with the ongoing US-China trade war, helped by data showing US consumer sentiment jumped to a 15-year high in early May.

The offshore Chinese yuan fell to its lowest levels since November after reports that the Chinese administration asked the US to “show sincerity” in order to hold meaningful talks. This kind of rhetoric has made analysts believe an imminent trade deal unlikely and there probably won’t be any high-level negotiations until the G20 meeting in late June. The Australian dollar, also highly exposed to Chinese trading capability, dropped to its lowest level since 3rd January.

EURUSD opened at 1.1177 and was fairly steady across the day, closing only slightly lower at 1.1165

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