The British pound is lower against the euro on Tuesday afternoon with markets uneasy at buying Sterling before the Bank of England decision on Thursday. Characteristically unenthusiastic comments about Brexit from Chief EU negotiator Michel Barnier may have added to the selling pressure on the British currency.
GBP/EUR was lower by 33 pips (-0.28%) at 1.1819 with a daily price range of 1.180 to 1.185 as of 1pm GMT. The pound begun its slide as European markets opened on Tuesday and eventually found support at near €1.18 and around the middle of its 5-day trading range.
The CME BOE Watch tool, used by traders to assess the probable next move from the Bank of England based on the movement in derivatives markets currently stands at 56%. So if the tool is to be believed, it is more likely than not that the UK is on the verge of lower interest rates. As a reminder, the currency from a nation that is lowering interest rates tends to underperform because investors will earn lower future returns from holding it.
Michel Barnier told students at the Queen’s University Belfast on Monday “Whatever agreement we reach on our future relationship Brexit will always be a matter of damage limitation.” But the EU’s Chief Brexit negotiator was not finished there. At a press conference on Tuesday with Irish Prime Minister Leo Varadkar, he added “If we have no agreement, it will not be business as usual and the status quo. We have to face a risk of a cliff edge, in particular for trade.”
The pound has been under pressure ever since UK Prime Minister Boris Johnson committed to a December 2020 deadline to conclude the EU-UK trade talks. If no agreement has been found by then, Britain faces another ‘No-Deal’ type scenario.
Forex markets continue to ‘de-risk’ with risker currencies sold and those perceived as safer bought amid the uncertainty around the coronavirus outbreak in China. The euro and the British pound have been under pressure against preferred haven currencies including the Japanese yen and Swiss franc.
