British Pound slips v Euro on Failed Belfast Article 50 Challenge | US Dollar Surprisingly Weak following US GDP Release

Fresh data shows traders remain heavily biased against Pound Sterling with news out of Belfast providing the latest opportunity to press the sell button.

• Pound to Euro exchange rate today (29-10-16): 1.1110
• Pound to Dollar exchange rate today: 1.2194 - recovery seen on GDP data release
• Euro to Pound Sterling exchange rate today: 0.9017

The Government on Friday 29th October won a court case in the High Court in Belfast challenging their right to trigger Brexit.

Justice Maguire rejected a pair of challenges and ruled that the government is able to trigger Article 50 without a parliamentary vote.

The judge also rejected a challenge based on the belief that Brexit would be invalidated by the terms of the Good Friday Peace Agreement.

Markets see this as setting a precedent for a similar High Court challenge taking place in London.

That said, whether it will influence the outcome of the London court case remains to be seen as the Belfast ruling comes after the closing of arguments in London.

Foreign exchange markets have seen this as another sign that the UK Government will hold all the cards in upcoming Brexit negotiations.

The common line of thought is that the UK Government is seeking a hard-Brexit which entails sacrificing unfettered access to the single market.

The Pound fell sharply against the Euro in the wake of the news.

We find the reaction by Sterling unsurprising as the currency remains almost primarily drive by Brexit news headlines.

We also continue to believe markets are irrationally assuming the UK Government will default to hard-Brexit and believe concessions will be given in order to keep access to the single market.

At this article's afternoon update we note Sterling has largely recovered its losses against most G10 currencies but remains subdued against the Euro.

This confirms that the hard-Brexit premium is largely written into current Sterling values.

"Expect the currency to remain around these weak levels for the rest of the year as the countervailing forces of higher inflation and weak longer-term growth (even if recent indicators have surprised to the upside) offset each other and remain depressed versus the euro next year," says Royce Mendes, Economist with CIBC Markets.

Latest Pound/Euro Exchange Rates

	Live: 1.1455▲ + 0.1% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.1066 - 1.1111
**Independent Specialist	1.1295 - 1.134 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

US GDP Beats Forecasts, But Dollar Struggles

The US Dollar is looking surprisingly soft ahead of the weekend despite a strong set of GDP statistics being released.

The Pound to Dollar exchange rate recovered to 1.2190 in the wake of the news.

Quarterly growth statistics showed 2.9% growth for the third quarter of 2016 which takes annualised growth to 1.5%.

Analysts had forecast quarterly growth to read at 2.5% and annualised growth to read at 1.3% so this is the kind of beat required to cement that December interest rate cut.

"A good chunk of the improvement comes from temporary factors, but the numbers are strong enough for the Fed to comfortably continue its strategy of hiking interest rates at a very modest pace," says Anders Svendsen at Nordea Markets.

The FX market reaction suggest to us that the Dollar has priced in as much of the interest rate rise into its current valuations as is possible.

Neverthless, "this bodes well for the greenback, as this positive indicator is in line with the Fed’s likely requisites for a December rate hike. With a FOMC announcement and Federal Funds rate announcement due on Wednesday, next week could be telling for the dollar, which could appreciate against the other major currencies if the Fed affirms expectations," says Joe Manimbo at Western Union.

Traders Look to Turn up the Heat on Sterling

The latest Commitments of Traders (COT) report from the US Commodity Futures Trading Commission (CFTC) shows investors are starting to once again build fresh bets against the Pound.

However, traders have added to GBP risk on both sides, narrowing the net short position for a third consecutive week.

“The net short remains relatively extended at $6.4bn just shy of the recent $7.8bn record. GBP bears are showing signs of renewed confidence with their first build in gross shorts since the flash crash from early October,” says Shaun Osborne, a strategist at Bank of Nova Scotia.