Pound and Euro weak, USD strong

UK and EU flag

Good morning. The Pound weakened yesterday as the rollercoaster of Brexit negotiations continue. One minute a deal is imminent and the Pound rises, then other comments surface that cast doubt on a deal being agreed this week, and the Pound falls. Just this morning in the last hour the GBP/EUR rate has fluctuated from €1.1440 and €1.1480. Ultimately if a deal is not announced by tomorrow (Wednesday) then the EU will not convene a special summit. This would push things back, increasing the chances of a ‘no deal’ scenario, and pull the Pound lower.

What else is moving currencies other than Brexit?

For a change it’s not just Brexit moving the currency markets. The Euro is also weak due to concerns over Italy’s budget, which is another reason that Pound/Euro rates are close to €1.15. The EU aren’t happy with the Italian budget, but the Italians are refusing to make any changes. There are reports that if they refuse to make any amendments today, the Euro could weaken further, helping the GBP/EUR rate rise as the Euro weakens and becomes cheaper.

Elsewhere, the US Dollar is benefitting from the uncertainty in Great Britain and the Eurozone. The weakness in the Euro and Pound have helped strengthen the US Dollar. This is reflected in the GBP/USD rate which is currently around $1.29. The fact that the FED are likely to continue raising interest rates in 2019 is helping Sterling.

What is in store today for the Pound?

Today, there are a few things that I think will affect rates. The most important and obvious one is Brexit. It’s crunch time in the negotiations, and if a deal is announced expect the Pound to rise. If nothing happens and it’s looking like things will be delayed, then the Pound will give up its recent gains.  This morning at 09:30am we will also see the latest UK job market data. Unemployment is expected to remain at a record low of 4%. The markets will be watching for the key wage growth number. It’s expected that wages will have grown by 3.1%. If confirmed, it would mean wages growing faster than inflation. This in turn would mean a higher chance of the Bank of England raising interest rates, and it would probably strengthen the Pound. This is because the prospect of higher interest rates strengthens a currency due to the higher return on offer for investors.

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