British pound losing momentum, Brexit no deal remains a possibility

British pound losing momentum, Brexit no deal remains a possibility

The British pound lost momentum Wednesday morning, ahead of the minutes from the latest US Federal Reserve meeting and amid discussions of leaving the EU without a trade deal.

The British pound initially moved higher at the UK open. However, around 9 BST it headed lower against the US dollar.

Lack of direction ahead of Fed minutes release

The minutes of the US Fed’s latest policy meeting will be published later Wednesday.

The Fed meeting minutes are expected to provide fresh direction for the currency pair. And, if the signs are that a US rate hike is imminent, it’s likely the US dollar will once again be in the ascendancy, against the British pound and other currencies.

However, comments on the possibility of the UK leaving the European Union without a formal trade deal, aren’t supportive of a stronger pound.

UK Brexit negotiations weigh a little on sterling

The British pound has been supported by growing expectations that the UK’s Bank of England will raise interest rates sooner rather than later. But, the lack of progress on Brexit continues to weigh on sterling, too.

Indeed, UK Chancellor of the Exchequer Philip Hammond did little to quench fears that the UK could leave the EU without any formal trade deals in place.

Of course, this isn’t a new claim. However, that Hammond has reiterated it’s a possibility, albeit one that isn’t being fully prepared for as yet, before the House of Commons Treasury Select Committee, has encouraged some investors to take a step back from the British pound.

Hammond’s comments also follow increasing signs that despite the UK’s apparent acquiescence to EU divorce demands, it isn’t considered to be enough.

Sterling could still spiral on Brexit

That’s the view of Commerzbank FX analyst Ulrich Leuchtmann. The head of FX research told clients in a research note that while sterling isn’t moving significantly lower every time talks stall, the eventual deal could weigh heavily on the British pound.

He told clients that “the British government seems to be out of its depth when it comes to the Brexit issue”, which could result in a “depreciation spiral” for sterling.

By Ilona Billington
Ilona is a freelance writer and editor with over 15 years experience reporting and writing about UK and European economics, real estate, financial markets and central banks.

Investing is speculative. When investing your capital is at risk. This site is not intended for use in jurisdictions in which the trading or investments described are prohibited and should only be used by such persons and in such ways as are legally permitted. Your investment may not qualify for investor protection in your country or state of residence, so please conduct your own due diligence. This website is free for you to use but we may receive commission from the companies we feature on this site. Click here for more information.