Sterling traders prepare for Brexit meltdown

Elias Hubbard
August 16, 2018

On Wednesday the pound slipped further to as low as $1.2689, its weakest since June 22, 2017, as the dollar extended its rally and after British inflation data for the month of July came in as expected.

As a currency that is heavily correlated to trade and commodities, the New Zealand Dollar is perceived as being a riskier buy than other major currencies like the Pound.

Uncertainties about how the Brexit process will impact United Kingdom businesses have been dampening United Kingdom economic activity for months already and these "no deal" Brexit fears have only worsened as next March's Brexit date approaches.

The data generally justified the Bank of England's (BoE) recent interest rate hike, but investors remain anxious about how Brexit uncertainties are impacting economic activity. Following a sell-off in emerging market currencies towards the end of the week, the pound continued weakening against the United States dollar, but made gains versus the euro.

Due to Turkey's surging inflation and worsening diplomatic tensions with the US, investors have been selling the Turkish Lira (TRY) en masse, and "safe haven" currencies like the US Dollar (USD) have been more appealing instead.

On top of this, last week's Reserve Bank of New Zealand (RBNZ) policy decision was surprisingly dovish to NZD investors, causing further weakness in the currency.

Meanwhile, developments in Brexit negotiations or the perceived chances of a "no deal" Brexit will continue to influence the Pound to Euro (GBP/EUR) exchange rate throughout the week too.

The Euro may find most support in data in Tuesday, as a slew of notable Eurozone ecostats will be published.

Sterling slid to a new 13-month low on Tuesday after a rebound in the dollar and as weaker-than-forecast wage growth offset an unexpected fall in Britain's unemployment rate. United Kingdom job market stats will come in on Tuesday, including the latest wage growth figures.

Investors expect to see the headline inflation rate edge up from 2.4% to 2.5% in July, confirming that domestic price pressures are still mounting.

United Kingdom inflation is forecast to have contracted slightly month-on-month, but the yearly figure is expected to have improved from 2.4% to 2.5%. The pound sterling has also dropped against the dollar.

United Kingdom inflation data and retail sales numbers for July are also due out this week.

Turkey has seen surging inflation in recent months, but not higher interest rates to match.

Other reports by Click Lancashire

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