The second day into the week and traders are once again eyeing GBP, although for buyers sterling may soon be out of sight.

Things have gone from bad to worse for the pound. As it stands, the pound is now the most volatile currency in the G-10.

It has fallen against the dollar for the past four trading days, hitting a new two-year low, as both the UK and the European Union refuse to change their negotiation positions. Prime Minister Boris Johnson’s office explained that the UK will push the European Union to negotiate a better deal, while preparing the country to leave the bloc without one should he fail.

Indeed, an economic storm could well be on its way. The Bank of England is due to add even more pressure to the currency when it meets on Thursday, when it is expected to signal that it is unlikely to raise interest rates in the next few months, thereby removing any such support for the cable.

Investors are hedging their bets that the prime minister’s Brexit brinkmanship with the European Union could trigger a very ugly withdrawal that would no doubt see chaos ripple through the world economy, including sending Britain’s economy into a recession, disrupting financial markets, and weaken London’s position as one of the most important financial hubs in the world.

Should the UK exit the European Union without a deal in place, money markets are pricing more than a 60% probability of a 25-basis point rate cut by December. This is in contrast to just 20% back in June, shortly after the Bank of England cited the need to increase rates in the next few years.

The pound has slumped almost 3% in the past four days and has now lost 2.2% against the dollar in the last week, and 3.8% over the last month. 

By 7 AM GMT, the pound had recovered marginally, hitting $1.2141 against the dollar and 1.0902 against the euro. However, at the open, it had fallen as far as $1.2120 and 1.0881 euros.

Its last four-day losing streak was back in October 2016, when the pound fell as much as 6% to $1.1841 in a one-minute window. This was thought to have been sparked by Theresa May’s decision to withdraw Britain from the European Union. In fact, the pound had the biggest one-day fall since the era of free-floating exchange rates was introduced in the early 1970s.

Since the 2016 vote, the pound has lost 28 cents.

Keeping up-to-date with foreign currency exchange rates will give you a good foundation for trading and allow you to better identify good investments in the long run. To learn more, start trading with a simple, yet effective broker, visit TIOmarkets.

Dalia Hilmi
Author

Write A Comment