- GBP at 6-month lows
- No let up in Brexit-related selling
- "We expect the newsflow is more likely to deteriorate than improve" - BNP Paribas
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- GBP/EUR spot: 1.0783 | GBP/USD spot: 1.2794
- GBP/EUR bank rates: 1.0580 | GBP/USD bank rates: 1.2536
- GBP/EUR specialist rates: 1.0680 | GBP/USD specialist rates: 1.2670
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After a brief pause, the British Pound is being dumped once more with further sizeable losses being realised ahead of the weekend ensuring those holding Sterling witnessed a further erosion of buying power.
The Pound fell by over a percent against the Euro and Dollar on Thursday before pausing in early European trade. However, as the day progresses the selling pressures have built once more taking GBP/USD losses this week to 3.60%, GBP/EUR weekly losses to 4.0%, and the week's losses for GBP/AUD to 3.80%.
The Pound-to-Euro exchange rate is quoted 0.60% lower on the day at 1.0767, the Pound-to-Dollar exchange rate is 0.25% lower at 1.2775 and the Pound-to-Australian Dollar exchange rate is 0.75% lower at 1.7507.
"The market stands with light shorts only & far from representative of elevated Brexit concerns. My take is the move lower is to reflect a possible 50% chance of a 'no deal' exit. We should continue to see Sterling depreciate," says Neil Jones, Mizuho Bank's London Head of FX sales for financial institutions.
Above: GBP/EUR price action Friday Sept. 11
The latest bout of selling appears to have commenced around 09:00 AM and there is no obvious trigger. "Overnight consolidation for GBPUSD has given way to yet another sharp move lower, with another six-week low looking likely before long. Brexit fears are likely to play an increasingly significant role," says Joshua Mahony, Senior Market Analyst at IG.
"GBP has really underperformed this week as we expected due to tensions in talks. We remain long EUR/GBP in cash, but we’re now in a no man’s land of levels with very few GBP barriers to judge where GBP can find support here. It’s likely this move lower in GBP continues until we find a concrete reason to buy GBP back," says Jordan Rochester, FX Strategist at Nomura Securities.
The market appears to be in a multi-day concerted push to position for a 'no deal' outcome to Brexit trade negotiations, with the selling of Sterling being the most obvious expression of this stance.
Polling by Reuters showed economist had 'no deal' expectations set at 30% in August, but this had risen to 40% at the start of September and before this week's political fireworks went off.
Analysts are now estimating the odds of a 'no deal' to be at 50% or above.
"Sterling resumed its current down-trend after a one day hiatus. The Internal Markets Bill has gone down particularly badly in Brussel and late afternoon the EU gave us a one month deadline to amend the Bill. Safe passage of the IMS through the Commons is all but assured with the majority Bo-Jo commands but discontent within the Lords will make it an altogether trickier proposition. There is still a train of thought that this is a high stakes negotiating tactic but my sense all along is the current administration would be comfortable walking away from FTA negotiations," says a note from the Deutsche Bank spot trading desk.
The key developments on the Brexit trade negotiations front are:
1) The EU has threatened sanctions if the UK proceeds with passing the Internal Markets Bill
2) The UK Government has said it will proceed with the Bill
3) The EU will exercise sanctions if the UK does not backtrack by Sept. 30
4) EU-UK trade negotiations will continue in Brussels next week
With negotiations at a deadlock the prospect for political tensions to rise was almost inevitable, and with it the selling of the Pound in anticipation of a bad outcome.
"We expect the newsflow is more likely to deteriorate than improve in the near-term. Together with scope for short GBP positions to build," says Parisha Saimbi, G10 FX Strategist, BNP Paribas London Branch.
Strategists at BNP Paribas have added a new trade to their portfolio that seeks to profit on further downside in Sterling against the Euro. They are targeting rise in EUR/GBP to 0.93 which gives a GBP/EUR downside target of 1.0752.
The trade seeks to offer protection against any further rise in "no deal" risk and broad risk-off sentiment.
"If a deal were eventually to be reached, we expect GBP to rise back toward its medium-term fair value as uncertainty unwinds and as it provides a base from which a more comprehensive relationship could build," says Saimbi.
BNP Paribas hold a base-case view that a Brexit deal will be reached and the Pound-Euro exchange rate will rise to a forecast target of 1.15 with the Pound-Dollar exchange rate forecast to rise to 1.41, aided by broad USD weakness, by end-2020.
(Some comment contributions courtesy of FXwatcher.com)
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