Pound headed for its worst week as Brexit worries resurface

By: Andia Rispah
Andia Rispah
Andia Rispah is a Personal Finance & Investment Writer who helps Financial Advisors to create valuable content to help… read more.
on Dec 20, 2019
  • A wounded GBP headed for a woeful week as Brexit worries revive.
  • Markets are fearing a chaotic Brexit, while economic data helped the dollar to arrest if recent slides.
  • Strong housing starts and firmer-than-expected manufacturing data this week helped to halt two weeks of dollar declines against other currencies.

A wounded GBP headed for a woeful week as Brexit worries revive. Markets are fearing a chaotic Brexit, while economic data helped the dollar to arrest if recent slides.

Overnight, the pound dropped below $1.30 for the first time in a fortnight. It remained at $1.3008 early in the Asian trading hours as worries grew about whether a deal could happen before the Dec 2020 hard deadline.

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The Cable (GBP/USD) gave up all its gains after the British PM-Boris Johnson’s re-election last week. The GBP slumped 2.4% against the dollar since Monday.

The pound fared even worse against the euro, headed for its largest weekly loss in more than three years if the slide persists.

The market was always a little bit naive in a way to think that a Tory election win was going to remove the fog of Brexit,” said Ray Attrill.

Ray Attrill is the head of FX strategy at National Australia Bank. “There were obviously some longs in weak hands that got forced out,” he added.

It’s more than three years since Britain voted to exit the European Union in the 2016 referendum. Boris Johnson has maintained that they’ll leave the bloc at the end of January. They have also set a hard deadline to reach a trade agreement by Dec 2020.

Brexit uncertainty helped the safe-haven Swiss franc to its highest in a month against the euro at 1.0881 francs per euro and its strongest against the dollar since September.

Positive economic data

Elsewhere the dollar found broad support. Strong housing starts and firmer-than-expected manufacturing data this week helped to halt two weeks of declines against other currencies.

The dollar was steady at 97.404.

Nobody expects the Fed to move interest rates anywhere when it meets in January.

The dollar last traded a whisker stronger on the Japanese yen at 109.37 yen and a tiny bit weaker against the euro at $1.1124. 

The dollar has gained 0.7% on the yen this week.

The best performer of the last 24 hours has been the Australian dollar, which rallied 0.5% as strong jobs data prompted traders to pare back bets on an interest rate cut when the central bank meets in February.

Expectations that the RBA will reduce rates fell from about 60% to just under even.

That’s a notable change. When you drop under 50%, the psychology changes a little bit,” said Westpac FX analyst Sean Callow. 

I can see why people are not quite convinced,” said Callow, who is sticking with a forecast for a cut.

The Aussie was last steady near a one-week high at $0.6883. 

The New Zealand dollar was stable at $0.6607, in a week where another round of positive economic data offset weakness in milk prices.

The Chinese yuan held just on the strong side of the symbolic 7-per-dollar as China’s unveiling of new tariff exemptions on U.S. chemical and oil product imports supported optimism about the Sino-U.S. trade detente.

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