Cable has printed a fresh one-month high at 1.2566. The Pound has also advanced against the Euro and Yen, among other currencies, though has either held steady of lost ground to the commodity currencies today, which are outperforming today.
Brexit-related news have the UK currency a boost, with the London Times reporting that the UK government is expected to signal a compromise on fisheries and “level playing field” trade rules. The caveat, according to the article, is for the EU to back off from its “maximalist” demands on regulatory alignment and fishing access. This comes with the next round of UK-EU trade talks commencing today — a significant juncture as it is the final round before the EU leaders’ summit this month and the July-1st deadline the two sides have set themselves before deciding that the UK can extend its post-Brexit access to the EU’s customs union and single market beyond the end of this year should a trade deal prove elusive. The UK government has being playing hard ball, saying that it is quite prepared to walk away without a deal, even though this would imperil the majority of UK trade to much-less-favourable WTO terms from January-1st 2021.
If the UK reach an agreement with the EU, or ask for an extension, this would be bullish for the Pound, which has factored in the risk of the UK leaving without a deal (which would be a crystallization of a hard Brexit) in 2021.
Bigger picture, the Pound has recovered most of the net losses seen during May against the dollar and yen, though remains down by over 1% against the euro from month-go levels. Weakness in May came amid speculation that the BoE is heading for negative rates (and join the ECB’s and SNB’s club).
The next BoE Monetary Policy Committee meeting is on June 17th-18th. We don’t expect the central bank ‘go negative’ at this juncture, based on recent signalling by BoE members, with social and economic reopening domestically, in Europe and across the world, driving a rebound from depressed levels in the UK economy. Much will depend on how successful the reopenings are without sparking a further lockdown. Another pressing issue in the UK is the trade negotiations between the UK and EU, with only one more round left (starting today) until the UK must decide if it wants to extend its post-Brexit access to the EU’s customs union and single market beyond the end of 2020.
The Cable could vault back above 1.3000 if economic reopenings go well and the UK government either makes a deal with the EU or extends its transitory single market membership.
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Andria Pichidi
Market Analyst
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