The pound fell below the $1.24 yesterday for the first time in over two years and hit six-month lows against the euro as both candidates to become the UK’s next Prime Minister competed over taking a harder Brexit stance. Their comments are causing traders to believe the likelihood of a no-deal Brexit has increased and a subsequent reduction of interest rates by the Bank of England becomes almost inevitable.
This was the largest one-day fall for the pound since March after Boris Johnson and Jeremy Hunt both said they would not accept the Northern Irish Backstop aspect of Theresa May’s Brexit deal, something that the EU has said they are not prepared to negotiate further. Johnson went one step further and vowed to close parliament for two weeks in October if he becomes Prime Minister to ensure MPs cannot derail the current exit date. The pound fell 0.9% against the dollar and 0.5% against the euro.
Strong employment data did little to move the pound after showing that average weekly earnings rose unexpectedly, but analysts are attributing this to employers hiring workers who can they can release later if need be.
GBPUSD opened at 1.2473 and made sharp losses in the morning and early afternoon, hitting a low of 1.2406 before levelling out in the afternoon and closing at 1.2418
GBPEUR opened at 1.1089 and fell slightly for most of the day, dropping to a mid-afternoon low of 1.1063 and closing at 1.1073
The US dollar rose against a basket of currencies on Tuesday as retail sales data came in stronger than expected and slightly reduced expectations of a Federal Reserve rate-cut later this month. The dollar was stronger against the euro due to a drop in German investor confidence caused by the China-US trade tensions and political tensions with Iran.
The index that tracks the dollar against six major rivals was up 0.48%. Recent data from the US has exceeded expectations but the ongoing political and economic concerns means that a rate-cut will remain the prevailing expectation.
EURUSD opened at 1.1248 and fell across the day, partly due to dollar strength, closing at 1.1214 but reaching a low of 1.1205 shortly after