Sterling nursed further losses on Wednesday. The pound fell versus the euro for the third straight session closing at €1.1116. The pair is down close to 1% this week so far. The pound is holding steady versus the euro in early trade on Thursday.
Pound investors were fully focused on Brexit in the previous session. The pound briefly spiked higher as rumours circulated that the EU would offer a time limit on the Irish backstop. However, the move higher was short-lived after the Northern Irish DUP party refused to back the Irish backstop in anyway, with or without a time limit. Stalemate in Brexit talks has investors increasingly fearful that the UK will leave the EU without a deal, in a disorderly Brexit. This pushed the pound lower.
Today Brexit developments will remain in focus as Prime Minister Boris Johnson makes a last-ditch attempt to seek a breakthrough in the stalled Brexit negotiations. He will meet with Irish PM Leo Varakdar. Whilst Boris Johnson said he was cautiously optimistic, pound traders appear less convinced.
Today there is a slew of UK data to be released which will provide clues as to the health of the UK economy just 3 weeks before the UK is due to leave the EU. The most closely watched figures will be manufacturing and industrial production, as well as the monthly GDP reading. Signs of weakness could drag the pound lower.
| Why is a “soft” Brexit better for sterling than a “hard” Brexit? |
| A soft Brexit implies anything less than UK’s complete withdrawal from the EU. For example, it could mean the UK retains some form of membership to the European Union single market in exchange for some free movement of people, i.e. immigration. This is considered more positive than a “hard” Brexit, which is a full severance from the EU. The reason “soft” is considered more pound-friendly is because the economic impact would be lower. If there is less negative impact on the economy, foreign investors will continue to invest in the UK. As investment requires local currency, this increased demand for the pound then boosts its value. |
Euro Investors Looks To ECB Minutes
Despite no economic data being released the euro charged higher in the previous session. The euro broadly traded at the will of the dollar. The euro often trades inversely to the US dollar, so when the dollar declines, the euro advances.
Today euro investors will look ahead to the release of the minutes from the September European Central Bank meeting. This was a meeting in which the central bank eased monetary policy in an attempt to shore up the slowing economy and lacklustre inflation. The ECB cut the overnight deposit rate and restarted the bond buying programme.
In the same meeting the ECB also called on individual governments within the eurozone to increase fiscal spending to support the ailing economies. Investors will scrutinise the minutes closely for clues as to how the central bank views the balance between monetary policy easing and increased fiscal spending.
| What do these figures mean? |
| When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written: 1 GBP = 1.13990 EUR Here, £1 is equivalent to approximately €1.14. This specifically measures the pound’s worth against the euro. If the euro amount increases in this pairing, it’s positive for the pound . Or, if you were looking at it the other way around: 1 EUR = 0.87271 GBP In this example, €1 is equivalent to approximately £0.87. This measures the euro’s worth versus the British pound. If the sterling number gets larger, it’s good news for the euro. |
