The pound recovered on Tuesday but was still held back by concerns of a hard Brexit despite President Trump’s promise of a “phenomenal” post-Brexit trade deal. This is the fourth consecutive week of the pound falling related to Brexit concerns. Sterling was up 0.2% against the dollar and euro but remains close to its four-and-a-half-month low.
With 11 candidates currently competing to take over from Theresa May, and most taking a hard stance on leaving the EU without a deal if necessary, analysts believe the pound could continue to fall but at a slower pace of depreciation now. Short positions on sterling are at their highest since March 2017, demonstrating reasonable uncertainty on the UK’s economic outlook.
GBPUSD opened at 1.2657 and rose across most of the day, reaching a high of 1.2696 and closing at 1.2685
GBPEUR initially fell to a 4½-month low of 1.1230 but recovered as the day continued, reaching a high of 1.1293.
The US dollar continued to fall on Tuesday after Federal Reserve Chair Jerome Powell mentioned the possibility of interest rate cuts due to economic risks, including global trade tensions. The dollar index which measures the greenback against six major currencies was 0.1% lower. Powell said that the Fed was “closely monitoring the implications” of the trade disputes and is prepared to respond “as appropriate”. Analysts now believe the Federal Reserve is trying to prepare markets for at least one interest rate cut this year.
Despite currency movements occurring on the back of headlines from Chinese or US administrations, it is worth noting these ongoing trade wars between the US and China are having economic consequences. In a survey on Monday, results showed national factory activity dropped to a two-and-a-half-year low. The Commerce Department also reported that new orders for US-made goods dropped in April and shipments dropped by the largest amount in two years, indicating a weakness in manufacturing that could affect the wider economy.
EURUSD opened at 1.1266 and fell in the morning to a low of 1.1233, a very slight recovery in the afternoon saw the pair close at 1.1246 and proceeded to return to opening levels later in the evening.