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Brexit vote delay triggers Sterling wipeout

Brexit vote delay triggers Sterling wipeout

GBP
UK GDP for Quarter 3 printed at 0.4%, in line with consensus forecasts but industrial production data missed forecasts as a decline in auto industry output hurt activity. The data barely registered as political developments dominated. Sterling fleetingly benefited after the European Court of Justice confirmed the UK could unilaterally revoke Article 50.

An emergency Cabinet meeting triggered speculation that the slated Brexit vote would be postponed and political concerns surrounding government weakness intensified. Sterling suffered sustained selling pressure as market confidence crumbled and uncertainty peaked. The Brexit vote was postponed and no future date has yet been proffered. Theresa May is seeking additional reassurance from the EU over the Irish backstop issue.

Following a brief respite, the Sterling onslaught resumed during Prime Minister May’s statement to parliament hitting 20-month lows near 1.2500 against the Dollar and three-month lows near 1.1000 against the Euro. There was a limited technical correction but the Pound remained below 1.2600 on the Dollar and the risks of a no-confidence vote in Theresa May and political divisions are at peak levels. UK Jobs data this morning will likely only provide a brief distraction.

USD

The US Dollar rebounded mildly today against a basket of currencies following last week’s significant drop. The Dollar had its biggest decline in over three months last week but recovered somewhat yesterday. Traders reduced their expectations for a considerable pause in interest rate hikes causing the Dollar to appreciate.

US JOLTS job-openings data remained strong at 7.08mn for October from 6.96mn previously and continued to indicate a tight labour market. The Dollar was still unsettled by a downgrading of 2019 interest rate forecasts, especially with a further tightening of financial conditions, but the US currency gained fresh defensive support as global equity markets declined and European confidence deteriorated.

EUR

The Euro had a solid start to the day but failed to move past the 1.1450 level against the Dollar before falling away sharply later in the day. Sentix Eurozone confidence fell well below forecasts with a -0.3 print for December, down from November’s 8.8 figure, maintaining fears for the growth outlook. Fears surrounding Brexit fed into the Euro weakening confidence significantly and the single currency swiftly dipped below 1.1400. There was limited support based on reports that Portugal had repaid all its IMF loans, although the Euro still dipped to lows near 1.1350 against the Dollar.

Data to watch:

00:30 AUD House Price Index (QoQ) (Q3)
09:30 GBP Average Earnings including Bonus (3Mo/Yr) (Oct)
09:30 GBP ILO Unemployment Rate (3M) (Oct)
09:30 GBP Average Earnings excluding Bonus (3Mo/Yr) (Oct)
09:30 GBP Claimant Count Change (Nov)
10:00 EUR ZEW Survey – Economic Sentiment (Dec) (Germany)
10:00 EUR ZEW Survey – Economic Sentiment (Dec) (Germany)
19:15 NZD RBNZ Governor Orr Speech
23:30 AUD Westpac Consumer Confidence (Dec)

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